# 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%3A2012-12418 ## Record - **Collection:** Federal Register - **Document type:** Rule - **Published:** May 31, 2012 - **Citation:** 77 FR 32184 ## Text DEPARTMENT OF ENERGY Federal Energy Regulatory Commission 18 CFR Part 35 [Docket No. RM10-23-001; Order No. 1000-A] Transmission Planning and Cost Allocation by Transmission Owning and Operating Public Utilities AGENCY: Federal Energy Regulatory Commission, Department of Energy. ACTION: Order on rehearing and clarification. SUMMARY: The Federal Energy Regulatory Commission affirms its basic determinations in Order No. 1000, 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. This order affirms the Order No. 1000 transmission planning reforms that: Require that each public utility transmission provider participate in a regional transmission planning process that produces a regional transmission plan; provide that local and regional transmission planning processes must provide an opportunity to identify and evaluate transmission needs driven by public policy requirements established by state or federal laws or regulations; improve coordination between neighboring transmission planning regions for new interregional transmission facilities; and remove from Commission-approved tariffs and agreements a federal right of first refusal. This order also affirms the Order No. 1000 requirements 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 new transmission facilities that are located in two neighboring transmission planning regions and are jointly evaluated by the two regions in the interregional transmission coordination process required by this Final Rule. Additionally, this order affirms the Order No. 1000 requirement that each cost allocation method must satisfy six cost allocation principles. DATES: This order on rehearing and clarification will be effective on July 2, 2012. FOR FURTHER INFORMATION CONTACT: John Cohen, Federal Energy Regulatory Commission, Office of the General Counsel, 888 First Street NE., Washington, DC 20426, (202) 502-8705. Shiv Mani, Federal Energy Regulatory Commission, Office of Energy Policy and Innovation, 888 First Street NE., Washington, DC 20426, (202) 502-8240. SUPPLEMENTARY INFORMATION: Before Commissioners: Jon Wellinghoff, Chairman; Philip D. Moeller, John R. Norris, and Cheryl A. LaFleur. Order No. 1000-A Order On Rehearing and Clarification Issued May 17, 2012 Table of Contents Paragraph No. I. Introduction 1 II. The Need for Reform 4 A. Final Rule 4 B. Requests for Rehearing and Clarification 13 1. Arguments Regarding Whether the Commission Provided Substantial Evidence for the Transmission Planning and Cost Allocation Reforms 13 C. Commission Determination 50 III. Transmission Planning 102 A. Regional Transmission Planning Process 102 1. Legal Authority for Order No. 1000's Transmission Planning Reforms 103 a. Final Rule 103 b. Order No. 1000's Interpretation of FPA Section 202(a) 108 i. Requests for Rehearing and Clarification 108 ii. Commission Determination 121 c. Role of FPA Section 217(b)(4) 159 i. Requests for Rehearing and Clarification 159 ii. Commission Determination 168 d. Effect on Integrated Resource Planning and State Authority Over Transmission Siting, Permitting, and Construction 180 i. Requests for Rehearing and Clarification 180 ii. Commission Determination 186 e. Legal Authority Related to Consideration of Transmission Needs Driven by Public Policy Requirements 195 i. Requests for Rehearing and Clarification 195 ii. Commission Determination 203 f. Legal Issues Related to Order No. 1000's Interregional Transmission Coordination Reforms 217 i. Requests for Rehearing and Clarification 217 ii. Commission Determination 222 g. Other Legal Issues Related to Regional Transmission Planning Requirements 228 i. Requests for Rehearing and Clarification 228 ii. Commission Determination 230 2. Regional Transmission Planning Requirements 232 a. Final Rule 232 b. Requests for Rehearing and Clarification 235 c. Commission Determination 263 3. Consideration of Transmission Needs Driven by Public Policy Requirements 302 a. Final Rule 302 b. Requests for Rehearing and Clarification 304 c. Commission Determination 317 B. Nonincumbent Transmission Developers 340 1. Legal Authority 341 a. Final Rule 341 b. Requests for Rehearing and Clarification 345 i. Arguments That the Commission Does Not Have the Authority To Eliminate a Federal Right of First Refusal 345 (a) Commission Determination 357 ii. Arguments That the Commission Is Inappropriately Regulating the Construction of Transmission 371 (a) Commission Determination 377 iii. Arguments That the Commission Must Meet the Mobile-Sierra Public Interest Standard Before Requiring Federal Rights of First Refusal To Be Removed From Agreements 383 (a) Commission Determination 388 2. Requirement To Remove a Federal Right of First Refusal from Commission-Jurisdictional Tariffs and Agreements, and Limits on the Applicability of That Requirement 392 a. Final Rule 392 b. Requests for Rehearing and Clarification 395 c. Commission Determination 415 3. Framework To Evaluate Transmission Projects Submitted for Selection in the Regional Plan for Purposes of Cost Allocation 431 a. Qualification Criteria To Submit a Transmission Project for Selection in the Regional Transmission Plan for Purposes of Cost Allocation 432 i. Final Rule 432 ii. Requests for Rehearing and Clarification 433 iii. Commission Determination 439 b. Evaluation of Proposals for Selection in the Regional Transmission Plan for Purposes of Cost Allocation 445 i. Final Rule 445 ii. Requests for Rehearing and Clarification 446 iii. Commission Determination 452 c. Reevaluation of Regional Transmission Plans When There Is a Project Delay and Reliability Compliance Obligations of Transmission Developers 457 i. Final Rule 457 ii. Requests for Rehearing and Clarification 460 iii. Commission Determination 477 d. Recovery of Abandoned Plant Costs and Backstop Authority 484 i. Final Rule 484 ii. Requests for Rehearing 485 iii. Commission Determination 489 C. Interregional Transmission Coordination 493 1. Interregional Transmission Coordination Requirements 493 a. Interregional Transmission Coordination Procedures and Geographical Scope 493 i. Final Rule 493 ii. Requests for Rehearing and Clarification 495 iii. Commission Determination 500 2. Implementation of the Interregional Transmission Coordination Requirements 506 a. Procedure for Joint Evaluation 506 i. Final Rule 506 ii. Requests for Rehearing and Clarification 507 iii. Commission Determination 509 b. Stakeholder Participation 513 i. Final Rule 513 ii. Requests for Rehearing and Clarification 514 iii. Commission Determination 518 IV. Cost Allocation 523 A. Legal Authority for Cost Allocation Reforms 525 1. Final Rule 525 2. Requests for Rehearing or Clarification 530 a. Petitioners' Arguments That The FPA Requires a Contract Before Costs Are Allocated 530 b. Arguments That Order No. 1000's Cost Allocation Reforms Are Inconsistent With the Cost Causation Principle 548 c. Arguments That The Commission Did Not Show That Existing Rates Are Unjust and Unreasonable 551 3. Commission Determination 555 B. Cost Allocation Method for Regional Transmission Facilities 593 1. Final Rule 593 2. Requests for Rehearing and Clarification 597 3. Commission Determination 613 C. Cost Allocation Method for Interregional Transmission Facilities 626 1. Final Rule 626 2. Requests for Rehearing or Clarification 631 3. Commission Determination 634 D. Principles for Regional and Interregional Cost Allocation 638 1. Use of a Principles-Based Approach 638 a. Arguments That Principles-Based Cost Allocation Methods Are Unfair and Arguments Related to Commission Determination of Cost Allocation Method Pursuant to the Compliance Process 640 i. Commission Determination 647 2. Cost Allocation Principle 1—Costs Allocated in a Way That Is Roughly Commensurate With Benefits 654 a. Requests for Rehearing or Clarification 658 i. Commission Determination 674 3. Cost Allocation Principle 2—No Involuntary Allocation of Costs to Non-Beneficiaries 684 a. Final Rule 684 b. Requests for Rehearing or Clarification 686 c. Commission Determination 689 4. Cost Allocation Principle 3—Benefit To Cost Threshold Ratio 692 a. Final Rule 692 b. Request for Rehearing or Clarification 694 c. Commission Determination 695 5. Cost Allocation Principle 4—Allocation To Be Solely Within Transmission Planning Region(s) Unless Those Outside Voluntarily Assume Costs 696 a. Final Rule 696 b. Requests for Rehearing or Clarification 697 c. Commission Determination 707 6. Whether To Establish Other Cost Allocation Principles 715 a. Final Rule 715 b. Requests for Rehearing 716 c. Commission Determination 717 E. Application of Cost Allocation Principles 718 1. Participant Funding 718 a. Final Rule 718 b. Requests for Rehearing or Clarification 719 c. Commission Determination 726 F. Other Cost Allocation Issues 738 1. Final Rule 738 2. Requests for Rehearing or Clarification 739 3. Commission Determination 745 V. Compliance and Reciprocity 748 A. Compliance 748 1. Final Rule 748 2. Requests for Rehearing or Clarification 749 3. Commission Determination 751 B. Reciprocity 754 1. Final Rule 754 2. Requests for Rehearing or Clarification 755 3. Commission Determination 771 VI. Information Collection Statement 779 VII. Document Availability 784 VIII. Effective Date and Congressional Notification 787 Appendix A: Abbreviated Names of Petitioners Appendix B: Pro Forma Open Access Transmission Tariff Attachment K I. Introduction 1. In Order No. 1000, the Commission amended 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. Order No. 1000's transmission planning reforms require: (1) Each public utility transmission provider to participate in a regional transmission planning process that produces a regional transmission plan; (2) that local and regional transmission planning processes must provide an opportunity to identify and evaluate transmission needs driven by public policy requirements established by state or federal laws or regulations; (3) improved coordination between neighboring transmission planning regions for new interregional transmission facilities; and (4) the removal from Commission-approved tariffs and agreements of a federal right of first refusal. 2. Order No. 1000 also requires that each public utility transmission provider must participate in a regional transmission planning process that has: (1) A regional cost allocation method for the cost of new transmission facilities selected in a regional transmission plan for purposes of cost allocation and (2) an interregional cost allocation method for the cost of new transmission facilities that are located in two neighboring transmission planning regions and are jointly evaluated by the two regions in the interregional transmission coordination process required by this Final Rule. Order No. 1000 also requires that each cost allocation method must satisfy six cost allocation principles. 3. Taken together, the reforms adopted in Order No. 1000 will 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. The Commission therefore rejects requests to eliminate, or substantially modify, the various reforms adopted in Order No. 1000; however, we do make a number of clarifications. 1 We address each of the arguments made by petitioners in turn. 2 1 No changes are being made to the regulatory text previously adopted, because any reference to Order No. 1000 (as well as to Order Nos. 888 and 890) in the existing regulatory text is meant to include any clarifications or changes made in subsequent orders on rehearing or clarification (e.g., Order Nos. 888-A, 890-A, and the instant Order No. 1000-A, etc.). The Commission has chosen this convention to help promote readability of the regulatory text. 2 A list of petitioners filing requests for rehearing and/or clarification is provided in Appendix A. An untimely request for rehearing was filed by the New Jersey Board of Public Utilities (New Jersey BPU). Pursuant to section 313(a) of the Federal Power Act (FPA), 16 U.S.C. 8251(a) (2006), an aggrieved party must file a request for rehearing within thirty days after the issuance of the Commission's order. Because the 30-day rehearing deadline is statutory, it cannot be extended, and New Jersey BPU's request for rehearing must be rejected as untimely. Moreover, the courts have repeatedly recognized that the time period within which a party may file an application for rehearing of a Commission order is statutorily established at 30 days by section 313(a) of the FPA and that the Commission has no discretion to extend that deadline. See, e.g., City of Campbell v. FERC, 770 F.2d 1180, 1183 (D.C. Cir. 1985); Boston Gas Co. v. FERC, 575 F.2d 975, 977-79 (1st Cir. 1978). II. The Need for Reform A. Final Rule 4. In Order No. 1000, the Commission concluded that it was appropriate to adopt the package of reforms addressing transmission planning and cost allocation set forth in the order, stating that its review of the record, as well as recent studies, indicated that the transmission planning and cost allocation requirements of Order No. 890 3 were an inadequate foundation for public utility transmission providers to address challenges they currently face or will face in the near future. 4 The Commission found that the record was adequate to support its conclusion that the existing requirements of Order No. 890 are too narrowly focused geographically and fail to provide for adequate analysis of the benefits associated with interregional transmission facilities traversing neighboring transmission planning regions. 5 3 Preventing Undue Discrimination and Preference in Transmission Service, Order No. 890, FERC Stats. & Regs. ¶ 31,241, order on reh'g, Order No. 890-A, FERC Stats. & Regs. ¶ 31,261 (2007), order on reh'g, Order No. 890-B, 123 FERC ¶ 61,299 (2008), order on reh'g, Order No. 890-C, 126 FERC ¶ 61,228 (2009), order on clarification, Order No. 890-D, 129 FERC ¶ 61,126 (2009). 4 Id. P 42. 5 Id. P 373. 5. The Commission found that recent increases in transmission investment in fact support the need to ensure that transmission planning and cost allocation requirements are adequate to support more efficient and cost-effective investment decisions. 6 It noted that this increase appears to be only the beginning of a longer-term period of investment in new transmission facilities, which is being driven, in part, by changes in the generation mix. Specifically, the Commission explained that existing and potential environmental regulation and state renewable portfolio standards are driving significant changes in the mix of resources, resulting in the early retirement of some coal-fired generation, increased reliance on natural gas for electricity generation, and large-scale integration of renewable generation. 7 The Commission stated that these shifts in the generation fleet increase the need for new transmission and that the existing transmission grids were not built to accommodate them. 8 It stated that the increased focus on investment in new transmission projects makes it even more critical to implement the reforms to ensure that the more efficient or cost-effective projects come to fruition. In short, the Commission stated that the record in this proceeding and the cited reports 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. The Commission concluded that it was, therefore, critical that it act now to address deficiencies to ensure that more efficient or cost-effective investments are made as the industry addresses these challenges. 6 Id. P 44. 7 Id. P 45. 8 Id. 6. The Commission then stated that it would not wait for systemic problems to undermine transmission planning before action is taken. Rather, the Commission concluded that it 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. The Commission noted that such 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 decades into the future, and that the development of transmission facilities can involve long lead times and complex problems related to design, siting, permitting, and financing. 9 Given the need to deal with these matters over a long time horizon, the Commission concluded that it is appropriate and prudent to act at this time rather than allowing the problems in transmission planning and cost allocation to continue or to increase. 9 Id. P 50. 7. The Commission concluded that its actions are consistent with the D.C. Circuit's opinions in National Fuel and Associated Gas Distributors. 10 Consistent with National Fuel, the Commission found that the problem it seeks to resolve, i.e., the narrow focus of current planning requirements and the shortcomings of current cost allocation practices, represents a significant “theoretical threat” that justifies Order No. 1000's requirements and is not one that the Commission can address adequately or efficiently through the adjudication of individual complaints. 11 The Commission explained that the actual experiences cited in the record provide additional support for action but are not necessary to justify the remedy, and that the remedy is justified by the theoretical threat identified therein. 12 10 Id. P 51 (citing National Fuel Gas Supply Corp. v. FERC, 468 F.3d 831 (D.C. Cir. 2006) ( National Fuel ); Associated Gas Distrib. v. FERC, 824 F.2d 981 (D.C. Cir. 1985) ( Associated Gas Distributors )). 11 Id. P 52. 12 Id. P 53. 8. The Commission also explained that the facts and findings of Associated Gas Distributors are in no way comparable to the matters involved in this proceeding. 13 It disagreed that its reforms will have an impact on the industry that is comparable to the impact at issue in Associated Gas Distributors. The Commission pointed out that compliance with Order No. 1000 will involve the adoption and implementation of additional processes and procedures, and that many public utility transmission providers already engage in processes and procedures of this type, even if some public utility transmission providers may need to do more than others to comply. 14 13 Id. P 54-55. 14 Id. P 56-57. 9. The Commission disagreed with assertions that it relied 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. 15 It stated that it need not make specific factual findings of discrimination to promulgate a generic rule to ensure just and reasonable rates or eliminate undue discrimination. 15 Id. P 58. 10. The Commission disagreed with claims 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. 16 The Commission stated that while the concerns it has with existing planning and cost allocation processes may not affect each region of the country equally, it nonetheless remained concerned that the existing processes are inadequate to ensure the development of more efficient and cost-effective transmission. It noted that it is well-established that the choice between rulemaking and case-by-case adjudication lies primarily in the informed discretion of the administrative agency. It also noted that each transmission planning region has unique characteristics, and Order No. 1000 provided significant flexibility to transmission planning regions to accommodate regional differences. 17 16 Id. P 60. 17 Id. P 61. 11. On the specific issue of nonincumbent transmission developers, the Commission found that there was sufficient justification in the record to implement the elimination of federal rights of first refusal contained in Commission-jurisdictional tariffs or agreements. It noted that although it previously accepted in some cases, and rejected in others, a federal right of first refusal, it found its reasoning in the cases rejecting the federal right of first refusal to be more persuasive. In particular, the Commission stated that it rejected a federal right of first refusal based on an expectation that “[t]he presence of multiple transmission developers would lower costs to customers.” 18 The Commission explained that it is not in the economic self-interest of incumbent transmission providers to permit new entrants to develop transmission facilities, even if proposals submitted by new entrants would result in a more efficient or cost-effective solution to a region's needs. 19 In addition, the Commission required all public utility transmission providers to adopt a framework that requires, among other things, the development of qualification criteria and protocols for the submission and evaluation of proposed transmission projects. 20 18 Cleco Power LLC, 101 FERC ¶ 61,008 at P 117 (2002), order terminating proceedings, 112 FERC ¶ 61,069 (2005); see also Carolina Power and Light Co., 94 FERC ¶ 61,273 at 62,010, order on reh'g, 95 FERC ¶ 61,282 at 61,995 (2001) (finding that a federal right of first refusal would unduly limit the planning authority and present the possibility of discrimination by self-interested transmission owners, potentially reduce reliability, and possibly precluding lower cost or superior transmission facilities or upgrades by third parties from being planned and constructed). 19 Order No. 1000, FERC Stats. & Regs. ¶ 31,323 at P 256. 20 Id. P 7. 12. Regarding its cost allocation reforms, the Commission concluded in Order No. 1000 that considering the changes within the industry and the implementation of other reforms in Order No. 1000, the requirements of Order No. 890 were no longer adequate to ensure rates, terms and conditions of jurisdictional service are just and reasonable and not unduly discriminatory or preferential. 21 It found that the challenges associated with allocating the cost of transmission appear to have become more acute as the need for transmission infrastructure has grown. 22 The Commission explained that within RTO or ISO regions, particularly those that encompass several states, the allocation of transmission costs is often contentious and prone to litigation. 23 It also noted that in other regions, few rate structures are currently in place that reflect an analysis of the beneficiaries of a transmission facility and provide for the corresponding cost allocation of the transmission facility's cost. 24 Similarly, the Commission noted that there are few rate structures in place today that provide for the allocation of costs of interregional transmission facilities. 25 Finally, the Commission found that the lack of clear ex ante cost allocation methods that identify beneficiaries of proposed regional and interregional transmission facilities may be impairing the ability of public utility transmission providers to implement more efficient or cost-effective transmission solutions identified during the transmission planning process. 26 21 Id. P 497. 22 Id. P 498. 23 Id. P 498. 24 Id. P 498. 25 Id. P 498. 26 Id. P 499. B. Requests for Rehearing and Clarification 1. Arguments Regarding Whether the Commission Provided Substantial Evidence for the Transmission Planning and Cost Allocation Reforms 13. While several petitioners seeking rehearing or clarification express general support for Order No. 1000, 27 others argue that the Commission failed to provide adequate justification under FPA section 206 for adopting its reforms. 28 Coalition for Fair Transmission Policy acknowledges that the circumstances against which the Commission must fulfill its statutory responsibilities change with developments in the electric industry, including changes with respect to demands on the transmission grid; however, it argues that Order No. 1000 takes the principle several steps beyond the Commission's existing statutory authority. Coalition for Fair Transmission Policy contends that the Commission makes a number of statements about problems facing the industry that are remarkable in their ambiguity, and the existence of problems does not empower the Commission to address every policy problem that arises from such developments or to commandeer regional transmission planning. Coalition for Fair Transmission Policy asserts that, if this was the case, section 216 of the FPA, which gives the Commission limited authority to site transmission facilities in national interest electric transmission corridors, would not have been necessary. 27 See, e.g., AEP; WIRES; AWEA; and Energy Future Coalition Group. 28 See, e.g., Large Public Power Council; Alabama PSC; Xcel; Georgia PSC; Ad Hoc Coalition of Southeastern Utilities; and PPL Companies. 14. PPL Companies argue that the Commission failed to show that existing rates, terms and conditions are unjust and unreasonable or unduly discriminatory absent Order No. 1000. 29 They also contend that Order No. 1000 not only fails to identify who is being discriminated against and who is discriminating, but never addresses whether discrimination has actually materialized in the three years since the Commission's last major rulemaking in this area. PPL Companies assert that, although the Commission is empowered to act against undue discrimination before it occurs, it must at least identify the discrimination it seeks to remedy. 30 They also maintain that the Commission did not specify which rate it has found to be unjust and unreasonable or what substantial evidence it relies upon to draw that conclusion. 29 PPL Companies at 6 (citing 16 U.S.C. 825l(b)). 30 PPL Companies at 6 (citing Associated Gas Distributors, 824 F.2d 981 at 1008). 15. Similarly, California ISO asserts that the Commission failed to identify any instance in which an existing rate is unjust, unreasonable, or unduly discriminatory or preferential because it does not include provisions for interregional coordination. Instead, California ISO asserts that the Commission only offers an unsupported hypothesis that planning between or among regions will enhance the Commission's ability to perform its mission. 16. Oklahoma Gas and Electric Company argues that Order No. 1000 provides no evidence that existing tariff provisions that address the construction and ownership of transmission facilities in any way result in unjust and unreasonable rates, or in undue discrimination against any customers. It asserts that the evidence the Commission cited is far weaker than the evidence it relied upon to support its expansion of the Standards of Conduct in Order No. 2004, where the court stated that “citing no evidence demonstrating that there is in fact an industry problem is not reasoned decision-making.” 31 31 Oklahoma Gas and Electric Company at 14 (citing National Fuel, 468 F.3d at 844). 17. Oklahoma Gas and Electric Company also claims that Order No. 1000 is devoid of support for the conclusion that existing tariff provisions interfere with transmission planning. It argues that there is no evidence, anecdotal or otherwise, that current RTO transmission planning processes generate an unreasonably limited range of options, and that there is no evidence that projects are delayed because they are being constructed by incumbent transmission owners. Specifically, Oklahoma Gas and Electric Company argues that the Commission cannot support a finding that the current transmission rules in SPP result in rates that are unjust and unreasonable. 32 32 Oklahoma Gas & Electric Company also states that SPP's transmission planning process is robust and almost all of the projects are being completed within designated timeframes. It contends that where appropriate, the process permits nonincumbent developers to collaborate with incumbent transmission owners to address system needs. It also asserts that the 90-day time limit for incumbent transmission owners to agree to build a designated project prevents a transmission provider from blocking or delaying the construction of projects and ensures that the process is open and transparent. 18. Georgia PSC argues that the Commission should recognize ongoing transmission processes that utilities are participating in and allow them to work before inserting another process that will strain resources. 19. Ad Hoc Coalition of Southeastern Utilities and Large Public Power Council assert that the Commission misread National Fuel, arguing that the court faulted the Commission for failing to support its decision with record evidence, and was non-committal on whether a decision might be supported by theory alone. 33 They state that it is incumbent on an agency to “examine the relevant data and articulate a satisfactory explanation for its action including a rational connection between the facts found and the choice made.” 34 They further note that National Fuel commented that “[p]rofessing that an order ameliorates a real industry problem but then citing no evidence demonstrating that there is in fact an industry problem is not reasoned decision-making.” 35 33 Ad Hoc Coalition of Southeastern Utilities at 16 (quoting National Fuel, 468 F.3d at 844 (“[W]e express no view here whether a theoretical threat alone would be sufficient to justify an order extending the Standards to non-marketing affiliates.”)). 34 Id. at 16 (quoting Motor Vehicles Mfrs. Ass'n of U.S. v. State Farm Mut. Auto Ins. Co., 463 U.S. 29, 43 (1983) ( State Farm )). 35 Ad Hoc Coalition of Southeastern Utilities at 16 (quoting National Fuel, 468 F.3d at 843). 20. Several petitioners take issue with the Commission's conclusion that it may act by citing to a “theoretical threat” rather than providing concrete evidence that the reforms are necessary. 36 For example, petitioners argue that the Commission failed to set forth substantial evidence, or any evidence, of undue discrimination to support its reforms. 37 Xcel adds that the Commission appears to concede that it lacks actual evidence of undue discrimination. Ad Hoc Coalition of Southeastern Utilities and Large Public Power Council argue that it is reasonable to conclude that the Commission has effectively conceded that there is no evidence justifying Order No. 1000 and that the Commission is relying on theory alone. 38 36 See, e.g., Ad Hoc Coalition of Southeastern Utilities; Large Public Power Council; North Carolina Agencies; and Southern Companies. 37 See, e.g., FirstEnergy Service Company; PSEG Companies at 25-32 (citing the APA, as well as National Fuel Gas Supply Corp. v. FERC, 468 F.3d 831, 838 (D.C. Cir. 2006) and Florida Gas Transmission Co. v. FERC, 604 F.3d 636, 645 (D.C. Cir. 2010)); Xcel; PSEG Companies; Sponsoring PJM Transmission Owners; Baltimore Gas & Electric at 15 (citing Order No. 1000, FERC Stats. & Regs. ¶ 31,323 at P 229); Ad Hoc Coalition of Southeastern Utilities at 55 (quoting in part Order No. 1000, FERC Stats. & Regs. ¶ 31,323 at P 253); Large Public Power Council; and MISO Transmission Owners Group 2. 38 Large Public Power Council also claims that the D.C. Circuit has taken judicial notice of the efficiencies derived from vertical integration. According to Large Public Power Council, this means that the court is effectively insisting that the Commission offer evidence that decisions to disaggregate utility operations planning must overcome a presumption that the efficiencies derived from vertical integration are not in the public interest. Large Public Power Council at n.38 (citing National Fuel, 468 F.3d at 840 (citing Tenneco Gas v. FERC, 969 F.2d 1187, 1197 (D.C. Cir. 1992))). 21. Ad Hoc Coalition of Southeastern Utilities and Large Public Power Council, as well as North Carolina Agencies, argue that the flaw in the Commission's decision is that both the problem it aims to solve and the solution are theoretical. Ad Hoc Coalition of Southeastern Utilities contends that reasoned decision-making calls for substantially more than a hypothesis that existing planning and cost allocation mechanisms may be suboptimal, and speculation that the mechanisms discussed in the order will result in the development of more efficient transmission. Southern Companies also argue that the Commission's explanation of the need for the transmission planning and cost allocation reforms in Order No. 1000 is built entirely on speculation. 39 Given this, Southern Companies contend that Order No. 1000 fails to represent lawful, reasoned agency decision-making by depending on a speculative theoretical threat to support the required reforms rather than providing the required assessment. 40 39 Southern Companies at 89-90 (citing Algonquin Gas Transmission Co. v. FERC, 948 F.2d 1305 (D.C. Cir. 1991)). 40 Southern Companies at 91 (citing State Farm, 463 U.S. 29, 43 (1983)). 22. Southern Companies and Ad Hoc Coalition of Southeastern Utilities state that Order No. 1000's reliance on an alleged theoretical threat misinterprets precedent that agencies need to prove theories beyond mere hypothesis or conjecture. 41 They argue that courts have historically allowed agencies to support orders by theory alone when the theory itself is well supported and represents a highly developed prediction of what actually happens in the real world. Southern Companies, Ad Hoc Coalition of Southeastern Utilities, and Large Public Power Council cite to Business Roundtable v. SEC, 42 where the court concluded that the Securities and Exchange Commission (SEC) had not adequately considered the effects of a proposed rule on efficiency, competition and capital formation. They maintain that the case deals with matters that are similar to the present proceeding. 41 Southern Companies at 14 (citing National Fuel; Electricity Consumer Resource Council v. FERC, 747 F.2d 1511, 1517 (D.C. Cir. 1984) ( ELCON )); Ad Hoc Coalition of Southeastern Utilities at 22-23 (citing same). 42 Business Roundtable v. SEC, 647 F.3d 1144 (D.C. Cir. 2011). 23. With respect to federal rights of first refusal, Sponsoring PJM Transmission Owners state that Order No. 1000's hypothetical discrimination stands in marked contrast to the concrete findings in Order No. 888 justifying the implementation of open transmission access and assert the Commission offers no evidentiary support for its findings. Baltimore Gas & Electric argues that the Commission is taking away a tariff-sanctioned right with nothing more than a “concern” that a right of first refusal may be leading towards rates that may become too high. It states that if the Commission believes that the problem is that rates will become too high, it should deal with the problem directly by lowering them, rather than by eliminating rights of first refusal. 43 43 Baltimore Gas & Electric at 18 (quoting National Fuel Gas Supply Corp. v. FERC, 468 F.3d 831, 844 (D.C. Cir. 2006)). 24. FirstEnergy Service Company takes issue with the Commission's reliance on National Fuel and asserts that a tenuous application of theory cannot support a rulemaking. 44 According to FirstEnergy Service Company, while the court in National Fuel acknowledged the possibility of an agency proceeding on theory alone to support a rulemaking, it also cautioned that such reliance required a substantial showing of the need in order to proceed. 45 California ISO makes a similar argument. Both FirstEnergy Service Company and California ISO assert that the Commission has not made any showing similar to that described in National Fuel to justify its sole reliance on theory. 44 FirstEnergy Service Company at 15 (citing National Fuel Supply Corp. v. FERC, 468 F.3d 831 (D.C. Cir. 2006) ( National Fuel )). 45 FirstEnergy Service Company at 15 (quoting National Fuel, 468 F.3d 831 at 844-45). 25. On the issue of the Commission's nonincumbent transmission developer reforms, Southern Companies assert that they do not have a federal right of first refusal and that there are no restrictions on a nonincumbent developer's ability to pursue transmission projects in the SERTP planning process. Southern Companies argue the Commission has failed to articulate a legal basis for imposing its nonincumbent requirements upon Southern Companies, when it has no right of first refusal. Furthermore, Southern Companies argue that the reason for the lack of nonincumbents in the Southeast is because the incumbent transmission owners have developed a robust transmission grid and are adequately investing in transmission. Southern Companies also assert that there have been no significant merchant transmission projects within their footprint because there is no congestion and generation is not remotely located. Thus, Southern Companies argue that Order No. 1000's generic findings of undue discrimination against nonincumbents are counter to record evidence and that to date no nonincumbents have proposed alternative transmission projects in the SERTP. In addition, Southern Companies state that the Commission does not have the authority to impose nonincumbent-related development rights sua sponte generically upon the industry. 26. Petitioners also argue that the Commission failed to identify any established theoretical principles in support of its reforms. 46 Southern Companies maintain that the Commission's reasoning does not meet the scientific standards of a “good theory,” which it defines as satisfying two conditions: “[i]t must accurately describe a large class of observations on the basis of a model that contains only a few arbitrary elements, and it must make definite predictions about the results of future observations.” 47 Xcel argues that if the Commission intends to rely only on theoretical evidence, it must satisfy the requirements of National Fuel by explaining why the individual complaint procedure provided an insufficient remedy. 48 MISO Transmission Owners Group 2 asserts that National Fuel did not authorize the Commission to issue a rulemaking solely on the basis of a “theoretical threat” but indicated that if the Commission attempted to do so, it would be required to provide a substantial explanation. It argues that the Commission provides no such analysis, but rather summarily indicates that the threat of abuse “is not one that can be addressed adequately or efficiently through the adjudication of individual complaints.” 49 MISO Transmission Owners Group 2 contends that a case-by-case analysis would be particularly appropriate in this instance given the dearth of empirical evidence demonstrating harm, compared to the actual examples of nonincumbent transmission developer participation in transmission planning processes in MISO and elsewhere. 46 See, e.g., FirstEnergy Service Company; Xcel; Sponsoring PJM Transmission Owners; PSEG Companies; and Xcel. 47 Southern Companies at 15 (quoting Stephen Hawking & Leonard Mlodinow, A Briefer History of Time 13-14 (2005)). 48 Xcel at 13-14 (citing Nat'l Fuel, 468 F.3d 831, 834, 844 (D.C. Cir. 2006)). 49 MISO Transmission Owners Group 2 at 15 (quoting Order No. 1000, FERC Stats. & Regs. ¶ 31,323 at P 52). 27. Other petitioners add that the reforms are unnecessary because there is evidence that transmission expansion has increased significantly over the past several years. 50 Large Public Power Council states that Order No. 1000 does not rely on any finding regarding the need to increase transmission development. Some petitioners also point to existing processes in the Southeast as undercutting the predicate for Order No. 1000. 51 North Carolina Agencies assert that there is error in the Commission's unwillingness to consider the highly developed planning processes in the region as a relevant factor in ascertaining the need for new rules. They also claim that although the anticipated demand for significant interregional transmission projects to transfer large amounts of remotely located renewable energy to fulfill public policy mandates is a major factual predicate for the proposals articulated, this is simply not present in the Southeast due to its resource base. They note that the Southeast already has a robust transmission system, as recognized in DOE's 2009 Transmission Congestion Study. North Carolina Agencies state that utilities in the Southeast remain vertically integrated and provide bundled retail service; the bulk of the resulting transmission cost is included in, and recovered through, state approved bundled retail rates. Thus, they argue that the evidence demonstrates that needed transmission investment is not lacking with respect to the utilities in the Southeast. 50 See, e.g., PSEG Companies. 51 See, e.g., Ad Hoc Coalition of Southeastern Utilities; North Carolina Agencies; and Southern Companies. 28. Southern Companies raise similar arguments with respect to existing regional transmission planning, interregional transmission coordination, and cost allocation processes in the Southeast, claiming that the new planning processes will not be associated with any previously unidentified new load growth, supply or demand side resource, or transmission service request because all of those elements are already addressed in the bottom-up planning processes. Southern Companies further argue that because Order No. 1000 lacks a process to identify new solutions, it will only serve to potentially optimize existing upgrades, which is already occurring due to extensive coordination with neighboring utilities in the Southeast. Ad Hoc Coalition of Southeastern Utilities raise similar arguments, and add that Order No. 1000's concern that some regional transmission planning processes permitted by Order No. 890 are only a forum to confirm simultaneous feasibility does not apply to planning processes in the Southeast. 29. Southern Companies explain that their Order No. 890 Attachment K compliance filing was accepted as of July 2010, and none of the changed circumstances cited in Order No. 1000 has occurred since then. Southern Companies assert that the Commission ignored evidence addressing their existing transmission planning processes and explaining how those processes assure consideration of better regional solutions and support just and reasonable rates. Southern Companies assert that unless detailed facts show existing cost allocation methods are impairing the proposal and consideration of better regional solutions, Order No. 1000 may not lawfully determine they are causing Southern Companies' rates, terms, and conditions for transmission service to be unjust and unreasonable. They also argue that, although the Commission is permitted in certain circumstances to make generic findings in support of its rulemaking, specific findings for specific entities are required when the actual facts applicable to those entities run counter to generic principles. 52 They add that, on rehearing, the Commission must address substantial evidence that supports the justness and reasonableness of Southern Companies' existing processes in determining whether the reforms of Order No. 1000 should be applied to supplant such processes, or exclude Southern Companies from Order No. 1000's generic findings. 52 Southern Companies at 92 (citing National Fuel, 468 F. 3d at 839). 30. Ad Hoc Coalition of Southeastern Utilities add that there are no planning gaps that need to be filled in the Southeast by the Commission's interregional coordination requirements. Ad Hoc Coalition of Southeastern Utilities and Southern Companies assert that the Southeastern utilities already share on an interregional basis data containing all of the information needed to make informed and efficient planning decisions. Ad Hoc Coalition of Southeastern Utilities further argues that the implication that additional interregional coordination will identify whether interregional transmission facilities are more efficient or cost-effective than regional transmission facilities is unfounded, and involves integrated resource planning analysis and `optimatization' analyses along the seams/interfaces that already occur in the Southeast. Ad Hoc Coalition of Southeastern Utilities concludes that the Commission's holdings regarding its interregional coordination requirements are unfounded and counter to the record evidence. 31. Moreover, Ad Hoc Coalition of Southeastern Utilities and Southern Companies assert that the factual record in this rulemaking demonstrates that the required interregional coordination reforms are likely to do more harm than good. For instance, Ad Hoc Coalition of Southeastern Utilities and Southern Companies state that it is costly to negotiate many coordination agreements and parallel OATT language with many different entities and to prospectively implement multiple bureaucratic requirements. 32. Sacramento Municipal Utility District argues that a generic rule is arbitrary and inappropriate to address a problem that exists, if at all, only in isolated pockets. 53 It also argues that the Commission cannot defend its actions on purely theoretical grounds unless it abandons its unsubstantiated claim that an actual problem exists. 54 Sacramento Municipal Utility District states that to the extent the Commission's rule was adopted to address a theoretical problem, it has failed to meet its burden of establishing that the burdens and costs imposed by the rule are justified by the threat to be addressed. 55 With respect to transmission planning in particular, Sacramento Municipal Utility District contends that the assertion that regional planning taking place under Order No. 890 is insufficient and producing unjust and unreasonable rates is premised on the existence of an actual, not theoretical, problem. It states that there is no evidence to support this assertion, and no evidence that the alleged problem affects more than a few isolated regions of the country. Sacramento Municipal Utility District adds that Order No. 1000 scarcely acknowledges comments documenting the success of various regional planning efforts, but instead refers to generalized statements of concern about potential problems in unidentified regions of the country involving unidentified utilities. It states that this is not the type of evidence upon which a rule purporting to address a national problem can be sustained and this is the same problem that resulted in the remand in National Fuel. 56 It argues that the Commission failed to establish that the burdens imposed by Order No. 1000 are justified by the threat addressed, 57 and that Order No. 1000 fails the test of reasoned decision-making, citing the fact that Order No. 1000 failed to take into account whether imposition of its mandatory cost allocation provisions will discourage rather than facilitate regional planning. Alabama PSC likewise contends that the speculative benefits identified in Order No. 1000 are not legally sufficient to justify the rule's burdens and disruptions and, as such, Order No. 1000 is not justified under the Commission's authority under section 206. Alabama PSC encourages the Commission to consider a regional or case-by-case approach if the Commission continues to believe that it should move forward with this initiative. 53 Sacramento Municipal Utility District at 4 (citing Associated Gas Distributors, 824 F.2d 981 at 1019). 54 Sacramento Municipal Utility District at 5 (citing National Fuel, 468 F.3d at 839). 55 Sacramento Municipal Utility District at 5 (citing National Fuel, 468 F.3d at 844). 56 Sacramento Municipal Utility District at 32 (citing Nat'l Fuel Gas Supply Corp. v. FERC, 468 F.3d 831, 844 (D.C. Cir. 2006)). 57 Sacramento Municipal Utility District at 33 (citing Nat'l Fuel Gas Supply Corp. v. FERC, 468 F.3d 831, 844 (D.C. Cir. 2006)). 33. Similarly, Ad Hoc Coalition of Southeastern Utilities contends that Order No. 1000 violates the guidance provided by National Fuel regarding what may be permissible by an order solely based upon a theory, arguing that the record demonstrates that there will be little benefit, and possible harm, if the interregional transmission coordination requirements are implemented. Additionally, Ad Hoc Coalition of Southeastern Utilities contend that these reforms would be burdensome to implement, because public utility transmission providers would have to negotiate a number of coordination agreements and parallel OATT language with many different entities and then prospectively implement a number of bureaucratic requirements. 58 Southern Companies agree. 58 Ad Hoc Coalition of Southeastern Utilities at 66 (quoting National Fuel, 468 F.3d at 844 (arguing that the Commission must explain how the “potential danger * * * unsupported by a record of abuse, justifies such costly prophylactic rules.”)). 34. NARUC argues that Order No. 1000 does not identify actual concerns or problems or rely on any factual record, but relies entirely on the conclusory statement that planning and cost allocation may be impeding the development of beneficial transmission lines. It also argues that efforts to sort through the ambiguities and comply with Order No. 1000 may stall existing local, regional, and DOE-funded interconnectionwide planning processes, creating uncertainty and requiring limited resources to be reallocated to compliance filings rather than to finalizing plans. NARUC further asserts that Order No. 1000 is premature because the results of the interconnectionwide planning process may eliminate the need for reform or indicate a need for different reforms. 35. Some petitioners also take issue with the Commission's efforts to distinguish Order No. 1000 from Associated Gas Distributors. 59 Large Public Power Council argues that the Commission is in error in attempting to minimize the exacting evidentiary standard for generic rulemaking called for in Associated Gas Distributors on the ground that the impact of the decision here is not “comparable.” 60 It argues that while the Commission states in Order No. 1000 that compliance “will involve implementation of additional processes and procedures” and many public utility transmission providers “already engage in processes and procedures of this type,” the goal of Order No. 1000 is to remedy unjust and unreasonable rates on a national basis by implementing new planning and cost recovery procedures. 61 Large Public Power Council asserts that even if this is not the case, the implications of Order No. 1000 involve cost shifting for the recovery of potentially hundreds of billions of dollars in transmission investment. Ad Hoc Coalition of Southeastern Utilities raises similar concerns, explaining that the attempt to distinguish Associated Gas Distributors “gives short shrift to the Commission's ambitions in promulgating Order No. 1000, which is to implement new planning and cost recovery procedures.” 62 59 See, e.g., Large Public Power Council; Ad Hoc Coalition of Southeastern Utilities; MISO Transmission Owners Group 2; Southern Companies; and Sacramento Municipal Utility District. 60 Large Public Power Council at 17 (quoting Order No. 1000, FERC Stats. & Regs. ¶ 31,323 at P 56). 61 Large Public Power Council at 17-18 (quoting Order No. 1000, FERC Stats. & Regs. ¶ 31,323 at 56). 62 Ad Hoc Coalition of Southeastern Utilities at 18. 36. MISO Transmission Owners Group 2 maintains that, while the Commission argued that Associated Gas Distributors states that it need not provide empirical data for every proposition upon which it depends, the Commission has a duty to “respond meaningfully” to the objections raised by opponents of its proposal, which it failed to do. 63 Southern Companies argue that the Commission did not squarely address comments asserting that there was no need for an industrywide solution when the problem applies only to a limited portion of the industry. 63 MISO Transmission Owners Group 2 at 13. 37. Similarly, California ISO argues that the Commission cannot find support in Associated Gas Distributors for acting based on a theoretical threat. 64 In contrast to Associated Gas Distributors, California ISO asserts that the Commission is not relying on an economic theory to determine the means for achieving its goal, but rather is attempting to rely on theory to establish the statutory predicate for action. 65 Furthermore, California ISO argues that the Commission's hypothesis that, in a regulated market, the absence of an ex ante cost allocation method will cause rates to be unjust or unreasonable is not based on an established economic theory. California ISO asserts that there is no empirical evidence for this hypothesis, and that the Commission has not cited any peer-reviewed or other economic analysis supporting its conclusion. As such, California ISO concludes that such a hypothesis cannot support action under section 206. 64 California ISO at 16 (citing Associated Gas, 824 F.2d 981 at 1008-09). 65 California ISO at 17 (citing Associated Gas, 824 F.2d 981 at 1008-09). 38. In addition, California ISO argues that the Commission has not identified any evidence to support a causal connection between a cost allocation methodology and improved cost-effectiveness. California ISO acknowledges two commenters that provided concrete examples that uncertainty about cost allocation was preventing some projects from going forward, but argues that these examples do not support the Commission's finding. 39. MISO Transmission Owners Group 2 asserts that the Commission relies on general suppositions to support its mandate that all rights of first refusal be removed from Commission-jurisdictional tariffs and contracts. For example, it states that Order No. 1000 states that nonincumbent transmission developers seeking to invest in transmission can be discouraged from doing so, but the Commission never identifies a single instance of a nonincumbent transmission developer foregoing an opportunity to invest in a transmission facility because of any existing federal right of first refusal. MISO Transmission Owners Group 2 maintains that the Commission ignored examples it and others gave of nonincumbent transmission developer involvement in regional planning processes, such as the CapX2020 Transmission Capacity Expansion Initiative, in which eleven entities, including MISO Transmission Owners, nonincumbent transmission developers, and transmission dependent utilities are engaged in a collaborative effort to construct nearly 700 miles of new extra-high voltage transmission facilities from the Dakotas to Wisconsin. 40. Similarly, MISO argues that while its existing regional planning processes have resulted in significant transmission expansion in the past and will result in even greater transmission construction in the future, Order No. 1000 does not identify any evidence that transmission planning, expansion and/or cost allocation have been hindered or harmed by the Transmission Owners Agreement provisions relating to the obligation to build, including any associated rights whose nature and effects may resemble rights of first refusal. It asserts that the Commission cannot use any evidence that may involve other RTO, ISOs, or public utilities to draw conclusions about any unjustness and unreasonableness of provisions in MISO's Transmission Owners Agreement, and to require the removal or modification of such provisions. 41. Baltimore Gas & Electric states that the Commission's rationale for eliminating the right of first refusal has no applicability to it and other transmission owner members of PJM since they have all relinquished transmission planning decisions to PJM. According to Baltimore Gas & Electric, it does not matter that transmission owners have an economic incentive to be unduly discriminatory in transmission planning once they have transferred that role to an RTO. Baltimore Gas & Electric asserts that PJM's Order No. 890 compliance filing ensures an open, transparent, and stakeholder-participatory transmission planning process that no transmission owner member has the ability to manipulate for anticompetitive purposes. In any event, Baltimore Gas & Electric states that the opportunity for undue discrimination existed in the abstract when federal right of first refusal rights were initially approved by the Commission, and that nothing has changed to warrant their removal now. Baltimore Gas & Electric adds that there are opportunities for any lawfully sanctioned activity to be misused. Thus, Baltimore Gas & Electric concludes that speculation as to how some bad actors may misuse rights is not a rational basis for eliminating the rights for all actors. 42. Similarly, Sunflower, Mid-Kansas, and Western Farmers dispute Order No. 1000's conclusion that it is not in the economic self-interest of public utility transmission providers, at least in the SPP region, to expand the grid to permit access to competing sources of supply to serve their customers. 66 They note that no state in the SPP region has enacted retail competition and, consequently, those states would not stand for anticompetitive behavior by incumbent transmission owners that would result in higher rates to consumers. 67 66 Sunflower, Mid-Kansas, and Western Farmers at 3 (citing Order No. 1000, FERC Stats. & Regs. ¶ 31,323 at P 254). 67 Sunflower, Mid-Kansas, and Western Farmers argue that this is borne out by activity in SPP of at least two independent transmission developers (ITC Great Plains, LLC and Prairie Wind Transmission, LLC). 43. Petitioners also disagree with the Commission's conclusion that it can rely on the benefits of competition to support the rule without a ground for a reasonable expectation that competition may have some beneficial impact. 68 These petitioners disagree with the Commission's interpretation of, and citation to, Wisconsin Gas. 69 Ad Hoc Coalition of Southeastern Utilities and Large Public Power Council argue that Wisconsin Gas dealt with the benefits of competition associated with promoting competitive sales of natural gas, which Congress made a national policy. In contrast, they argue that there is no indication that Congress has endorsed promoting competition for the development of transmission infrastructure. Large Public Power Council quotes the language from Wisconsin Gas where the court stated that “unsupported or abstract allegations of benefits that will accrue from increased competition cannot substitute for a conscientious effort to take into account what is known as to past experience and what is reasonably predictable about the future.” 70 Large Public Power Council asserts that here, the Commission not only lacks any legitimate basis for a presumption that competition in the transmission development business serves the public interest, but fails to amass any evidence for its view. 68 See, e.g., PSEG Companies; Ad Hoc Coalition of Southeastern Utilities at 55 (quoting Order No. 1000, FERC Stats. & Regs. ¶ 31,323 at P 268); and Large Public Power Council. 69 See, e.g., PSEG Companies; Ad Hoc Coalition of Southeastern Utilities at 56 (citing Order No. 1000, FERC Stats. & Regs. ¶ 31,323 at P 268, n.243); and Large Public Power Council. 70 Large Public Power Council at 28 (quoting Wisconsin Gas, 770 F.2d 1144 at 1158). 44. A number of petitioners question the Commission's assertion that adding more transmission developers may lead to the identification of more efficient alternatives. 71 Oklahoma Gas and Electric Company asserts that the Commission has not supported the assumption that competition between potential developers in the process of evaluating and selecting proposed projects will result in more cost-effective transmission service rates. Sponsoring PJM Transmission Owners argue that precedent does not support the Commission's conclusion that the mere invocation of general beneficial impacts of competition suffices to support modifying rates pursuant to section 206. Sponsoring PJM Transmission Owners also assert the real issue is not competition between transmission providers, but rather which entity will be the monopoly owner of a transmission line. Oklahoma Gas and Electric Company states that nothing in Order No. 1000 will result in head-to-head competition between service providers, or between competing lines. It elaborates that the market will not be choosing who constructs new projects, but rather the stakeholder process will be used to make a choice based on uncertain estimates and inputs. 71 See, e.g., Southern Companies; Sponsoring PJM Transmission Owners at 16, 20 (citing Williston Basin Interstate Pipeline Co. v. FERC, 358 F.3d 45, 50 (D.C. Cir. 2004)); Ad Hoc Coalition of Southeastern Utilities at 57 (quoting Washington Gas, 770 F.2d at 1158). 45. Sponsoring PJM Transmission Owners argue the Commission has not explained or demonstrated how competition among transmission developers would reduce the cost of transmission construction and consequently transmission service. For instance, Sponsoring PJM Transmission Owners state that even if a nonincumbent submits a proposal that it projects will have the lowest cost, the Commission has produced no evidence that its actual costs of construction will be lower than the cost the incumbent would incur. Instead, they argue that the incumbent is far more likely to have existing rights of way and more experience with construction and logistical issues that may arise in its area, and thus is better positioned politically to overcome local objections to siting. Baltimore Gas & Electric notes that the Commission has recognized that incumbents have certain advantages, such as a unique knowledge of their own systems and other matters, and that the Commission has stated that such factors can be highlighted in the decisional process leading to project selection. Baltimore Gas & Electric states that it is thus unclear to why the Commission would require that the existing federal right of first refusal provision should be eliminated if the same result can be achieved in the decisional process by taking into account that the incumbent is better placed to construct and own a project. 46. Sponsoring PJM Transmission Owners argue the Commission has not explained how any reduction in construction costs—assuming it could be achieved—would translate into lower rates, after taking into account differing corporate structures, rates of return, and Commission-granted incentives. Ad Hoc Coalition of Southeastern Utilities and Large Public Power Council argue that the efficiencies that the Commission presumes will be associated with its decisions, and that it assumes will overcome added costs and risks, are not a matter that the Commission is entitled to presume. Xcel argues that the Commission's rationale to increase competition does not apply to reliability projects, which have the narrow function of ensuring reliable service to customers. 72 72 Xcel at 12-13 (citing Order No. 1000, FERC Stats. & Regs. ¶ 31,323 at P 284-85). 47. Some petitioners argue that the mixed record does not justify the Commissions ruling. 73 For instance, petitioners argue that the Commission must, as a matter of law, take notice of efficiencies lost and reliability problems created by the Commission's decision. 74 Specifically, Large Public Power Council argues that planning engineers will spend time addressing stakeholder and competitors' concerns in Commission-sponsored planning forums rather than working to meet the needs of their native loads. Additionally, it states that countless hours will be needed to perform studies, reengineer systems, and coordinate third-party construction schedules and priorities. Ameren adds that MISO will have to expend considerable resources to re-assess years of transmission planning work to apply the new rule. 73 See, e.g., Baltimore Gas & Electric at 16-17 (citing Central Iowa Power Cooperative v. FERC, 606 F.2d 1156 (D.C. Cir. 1979)). 74 See, e.g., Ad Hoc Coalition of Southeastern Utilities; Large Public Power Council at 27 (citing National Fuel and Tenneco Gas ). 48. Sponsoring PJM Transmission Owners argue the Commission has ignored other potential costs associated with eliminating the right of first refusal, including expensive mitigation plans in the event that a nonincumbent abandons a reliability project. Similarly, Xcel asserts that Commission's statement in P 344 of Order No. 1000 indicates the Commission's belief that certain nonincumbent transmission developers will not be able to complete the projects assigned to them. Xcel adds that other risks will increase from the utility transmission providers' inability to guarantee reliable service, such as litigation arising from outages. 49. Ad Hoc Coalition of Southeastern Utilities asserts that Commission policy has persistently treated transmission as a natural monopoly, and therefore the court's decision in Wisconsin Gas should serve as a warning light rather than the license that the Commission assumes it to be. Southern Companies contend that Order No. 1000 assumes that vertical integration is unduly discriminatory because it requires nonincumbents to have a right to propose, own, build and operate integrated network elements. Southern Companies assert that they operate under the traditional regulatory compact, with efficiencies of vertical integration, economy of scale, duty to serve, and adequate return on investment, which ensures necessary transmission is constructed on schedule and is appropriately operated and maintained. Southern Companies state that by not recognizing and rationally explaining this change in precedent, the Commission has acted arbitrarily and capriciously. C. Commission Determination 50. We deny the requests for rehearing that challenge the Commission's determination that the reforms instituted by Order No. 1000 are needed. As we noted in Order No. 1000, changes are at work in the electric utility industry that have created an additional, and potentially significant, need for new transmission infrastructure. Order No. 1000 cited studies conducted by the North American Electric Reliability Corporation (NERC) and Edison Electric Institute (EEI) that confirmed an increase in transmission development over the last several years, and the Commission cited to an EEI-commissioned Brattle Group study suggesting that approximately $298 billion in new transmission facilities will be required over the period 2010 to 2030. 75 Order No. 1000 explained that these changes are being driven in large part by the changes in the generation mix, and it cited NERC's 2009 Assessment, which stated that existing and potential environmental regulation and state renewable portfolio standards are driving significant changes in the generation mix, resulting in early retirements of coal-fired generation, an increasing reliance on natural gas, and large-scale integration of renewable generation. 76 75 Order No. 1000, FERC Stats. & Regs. ¶ 31,323 at PP 44-45. 76 Id. P 45. 51. The Commission concluded in Order No. 1000 that current transmission planning and cost allocation requirements are inadequate to meet these challenges. Current requirements threaten to thwart identification of transmission solutions that are more efficient or cost-effective than would be the case without the reforms contained in Order No. 1000. As a result, the Commission concluded—and we affirm here—that it is necessary and appropriate that we take proactive steps to ensure that this threat does not result in such adverse consequences. The narrow focus of current transmission planning requirements, and the shortcomings of current cost allocation practices, represent a threat that justifies Order No. 1000's requirements, and it is not one that the Commission can address adequately or efficiently through the adjudication of individual complaints. 77 The Commission explained that the actual experiences cited in the record provide additional support for action but are not necessary to justify the remedy, and that the remedy is justified by the theoretical threat identified therein. 77 Id. P 52. 52. Order No. 1000 addresses the inadequacy of existing requirements by establishing minimum criteria that the transmission planning process must satisfy, including general principles that cost allocation practices must follow. These criteria are interrelated and were designed as a package to ensure that an effective transmission planning process is in place in each region. 78 Effective transmission planning requires coordination among transmission planning entities; is open and transparent, which is necessary for any process that involves multiple entities with a variety of needs or views regarding this process; considers all transmission needs of all transmission customers; results in an identifiable product reflecting regional determinations; and does not create unnecessary barriers to the consideration of good ideas or the selection of the most advantageous transmission solutions, regardless of whether the developer of a transmission solution is an incumbent transmission developer/provider or a nonincumbent transmission developer. Effective transmission planning should also recognize that there may be even more efficient or cost-effective solutions that are identified through interregional transmission coordination efforts than those solutions identified in a regional transmission planning process. Finally, effective transmission planning is performed with a clear ex ante understanding of who will pay for a facility selected in a regional transmission plan for purposes of cost allocation. Without that understanding, the likelihood that selected facilities will be implemented is diminished, undermining the entire purpose of the transmission planning process, namely, the development of efficient and cost-effective transmission solutions. 78 Proposed Rule, FERC Stats. & Regs. ¶ 32,660 at 42; Order No. 1000, FERC Stats. & Regs. ¶ 31,323 at P 47. 53. These basic principles encompass all the reforms found in Order No. 1000 and show how the reforms are interrelated to serve a common purpose. If any of the reforms are absent, the effectiveness of transmission planning and cost allocation processes would be undermined. We are not able to identify any argument raised on rehearing that demonstrates that any of these principles are invalid. Instead, the overriding objection raised by the petitioners to the Commission's discussion of the need for the reforms in Order No. 1000 is that the Commission either has not demonstrated the existence of a problem that requires correction through implementation of new requirements, or that it has not shown that the problems it has identified exist in all regions of the country, thus undermining the need for generic rules that apply to all public utility transmission providers. The petitioners that raise these objections maintain that the development of needed transmission facilities is proceeding apace, either nationally or in a specific region, and thus currently there is nothing amiss that requires correction. From this, petitioners conclude that the Commission has not presented substantial evidence of a current problem that shows the need for its reforms. 54. We disagree. As the Commission noted in Order No. 1000, the expansion of the transmission grid is the result of a complex and often contentious process that occurs over a long time horizon. 79 It is capital intensive and subject to numerous regulatory hurdles. It is further complicated by the problem of determining how costs for the expansion will be allocated in instances when multiple entities benefit. Given the fundamental importance of transmission infrastructure, and the many difficulties involved in its development, including the long lead times involved, we continue to believe that a proactive approach is necessary. As discussed in Order No. 1000 and reiterated below, such an approach is fully consistent with the applicable legal requirements. 79 Order No. 1000, FERC Stats. & Regs. ¶ 31,323 at P 50. 55. Petitioners' specific arguments that the Commission has not adequately justified the need for the reforms in Order No. 1000 fall under six broad headings: (1) The Commission has failed to demonstrate that any existing rate, term or condition of or for transmission service is unjust and unreasonable or unduly discriminatory or preferential; (2) the Commission supports its need for reform based solely on the existence of a theoretical threat, and it is not clear in National Fuel whether such a decision can be supported on this basis alone: (3) the theoretical threat that the Commission uses to justify its reforms in Order No. 1000 amounts to hypothesis and speculation and ignores existing realities, especially in the Southeast; (4) the Commission has not identified a theoretical threat that justifies the removal of federal rights of first refusal from Commission- jurisdictional tariffs and agreements and that the Commission has not shown that there is a reasonable expectation that competition in transmission development may have some beneficial impact on rates; (5) the burdens imposed by the Commission's reforms outweigh the benefits; and (6) other issues that do not fall into a general category. We address each of these arguments in turn below. Whether Is It Necessary That the Commission Demonstrate That Any Existing Rate, Term or Condition of or for Transmission Service Is Unjust and Unreasonable or Unduly Discriminatory or Preferential 56. California ISO, PPL Companies, Southern Companies, and Oklahoma Gas and Electric Company challenge the Commission on the grounds that it has failed to demonstrate that any existing rate, term or condition of or for transmission service is unjust and unreasonable or unduly discriminatory or preferential. However, the Commission is not required to make individual findings concerning the rates of individual public utility transmission providers when proceeding under FPA section 206 by means of a generic rule. 80 When the Commission proceeds by rule it can conclude that “ any tariff violating the rule would have such adverse effects * * * as to render it `unjust and unreasonable' ” within the meaning of section 206 of the FPA. 81 80 Associated Gas Distributors v. FERC, 824 F.2d at 1008. 81 Id. (emphasis in original). 57. One circumstance that can justify the application of this principle is the existence of a threat that, in the absence of Commission action, would materialize and cause rates to be unjust and unreasonable, or unduly discriminatory or preferential. A threat that has not yet materialized is what the court in National Fuel described as a “theoretical threat.” The Commission justified the need for the reforms in Order No. 1000 based on such a threat created by the inadequacy of existing transmission planning and cost allocation requirements to meet the anticipated challenges facing the industry, a threat whose existence was illustrated by actual problems that the Commission noted in the order, but that are not necessary to justify its response to the threat. 82 82 Order No. 1000, FERC Stats. & Regs. ¶ 31,323 at P 53. Whether the Reforms in Order No. 1000 can be Supported on the Basis of a Theoretical Threat Alone 58. A number of petitioners call into question the use of a theoretical threat as the basis for the Commission's reforms. 83 For example, Ad Hoc Coalition of Southeastern Utilities maintains that, based on National Fuel, it is not clear whether a decision might be supported by theory alone. We disagree that the court in National Fuel was non-committal on this point. The court specifically stated that the Commission could choose “to rely solely on a theoretical threat.” 84 While it listed certain matters that the Commission would need to address on remand, it did not comment on the possibility of addressing them successfully, nor did it say anything to suggest that this approach might be defective in principle. FirstEnergy Service Company argues that the list of specific matters that the court listed defines the showing that must be made to rely on a theoretical threat in all cases. However, the court's list of matters to be addressed on remand was simply a reflection of the specific issues it saw in the case at hand, not what was required in all cases. Moreover, when the court stated in National Fuel that it expressed “no view here whether a theoretical threat alone would justify an order * * *,” 85 it was referring to the justification of an order in the matter at hand, not any and every possible proceeding. Additionally, we note that the same court subsequently reconfirmed the legitimacy of reliance on theoretical threats, and it based its conclusion directly on the ruling it made in National Fuel. 86 83 See, e.g., Ad Hoc Coalition of Southeastern Utilities; and Large Public Power Council. 84 National Fuel, 468 F.3d at 844. 85 Id. at 844. 86 BNSF Railway Co. v. Surface Transportation Board, 526 F.3d 770, 778 (D.C. Cir. 2008) ( BNSF Railway Co. ) (finding that the Surface Transportation Board could adopt a new method to correct excessive railroad rates arising through gaming behavior by the railroads even when there was no evidence of such behavior on their part). Whether the Commission's Argument That the Reforms in Order No. 1000 Are Needed Amounts to Hypothesis and Speculation and Ignores Existing Realities, Especially in the Southeast 59. Several petitioners characterize the Commission's approach as based on hypothesis and speculation. For example, Southern Companies claim that the Commission is making “little more than a guess—a speculative hypothesis,” 87 and Ad Hoc Coalition of Southeastern Utilities and Alabama PSC also claim that the Commission is acting on mere conjecture. Southern Companies insist that the Commission must provide detailed facts showing that existing cost allocation methods are impairing better regional transmission solutions. NARUC states that the Commission does not identify actual concerns or problems or rely on any factual record and instead proceeds in a conclusory fashion. Some petitioners also maintain that the existing situation in the Southeast undercuts the Commission's position. 87 Southern Companies at 16. 60. As an initial matter, we note that, based on our expertise and knowledge of the industry, we do not consider it to be speculation or conjecture to conclude that regional transmission planning is more effective if it results in a transmission plan, is open and transparent, and considers all transmission needs. Nor do we consider it speculation or conjecture to state that barriers to the proposal and evaluation of alternative transmission solutions will inhibit more efficient or cost-effective transmission solutions, or that the implementation of transmission plans will be improved where there is a clear ex ante understanding of who will pay for the facilities selected in the regional transmission plan for purposes of cost allocation. As we explain in the following discussion, such propositions are fully consistent with the grounds for action that courts have accepted in the past. 61. To argue that drawing such conclusions amounts to speculation or conjecture also conflicts with the principle articulated above that the Commission is not required to make individual findings under section 206 when formulating generic rules. They also imply that a threat that can justify Commission action in a rulemaking must be actual, i.e., one whose consequences have been realized, not one whose consequences are anticipated or, as the court expressed it in National Fuel, a threat that is “theoretical.” 62. These criticisms thus mischaracterize what the courts mean by proceeding on the basis of a theoretical threat. It means to proceed on the basis of a particular type of fact, “generic” facts that constitute the basis for “generic factual predictions” that can constitute a rational basis for an agency's decision. 88 The court in Associated Gas Producers gave the following as an example of an acceptable generic factual prediction: “the increased incentive to compete vigorously in the market would eventually lead to lower prices for all consumers.” 89 The court treated such predictions as based on behavioral assumptions that are not subject to serious dispute. Thus the court stated that “[a]gencies do not need to conduct experiments in order to rely on the prediction that an unsupported stone will fall; nor need they do so for predictions that competition will normally lead to lower prices.” 90 Indeed, the court acknowledged that such propositions can be accepted without record evidence when the prediction is viewed “as at least likely enough to be within the Commission's authority.” 91 88 Associated Gas Distributors, 824 F.2d 981 at1008. 89 Id. (citing Wisconsin Gas, 770 F2d at 1161). 90 Id. at 1008-9. 91 Id. at 1008. 63. Other courts have recognized that when promulgating rules of general and prospective applicability, agencies can draw “factual inferences * * * in the formulation of a basically legislative-type judgment, for prospective application only.” 92 Such judgments are closely bound up to what are sometimes referred to as “legislative facts,” i.e., “facts which help the tribunal determine the content of law and of policy and help the tribunal to exercise its judgment or discretion in determining what course of action to take.” 93 The District of Columbia Circuit has stated that “legislative facts are crucial to the prediction of future events and to the evaluation of certain risks, both of which are inherent in administrative policymaking.” 94 The Supreme Court has ruled that when dealing with matters that are “primarily of a judgmental or predictive nature * * * complete factual support in the record for [an agency's] judgment or prediction is not possible or required; `a forecast of the direction in which future public interest lies necessarily involves deductions based on the expert knowledge of the agency.' ” 95 This is precisely what is involved in the Commission's reasoning in Order No. 1000. 92 United States v. Florida East Coast Ry., 410 U.S. 224, 246 (1973); United Air Lines, Inc. v. Civil Aeronautics Board, 766 F.2d 1107, 1119 (7th Cir 1985). 93 Association of National Advertisers, Inc., v. FTC, 627 F.2d 1151, 1161-62 (D.C. Cir. 1979) ( Ass'n of National Advertisers ) ( quoting 2 K. Davis, Administrative Law Treatise, § 15.03, at 353 (1958)). 94 Id. at 1162. 95 FCC v. National Citizens Committee for Broadcasting, 436 U.S. 775, 814 (1978) (quoting FPC v. Transcontinental Gas Pipe Line Corp., 365 U.S. 1, 29 (1961)); see also Ass'n of National Advertisers, Inc., 627 F.2d at 1162. 64. We disagree with the arguments made by various petitioners that we have ignored evidence that disproves our reasoning. The evidence in question consists of a description of the current state of transmission planning and development in a specific region combined with an expression of satisfaction with the current situation. For example, North Carolina Agencies state that there is no evidence that transmission is lacking in the Southeast and that there is no need in this region for transmission projects that can transfer large amounts of renewable energy. North Carolina Agencies state that the transmission planning processes in the Southeast are already highly developed, and Southern Companies state that in the Southeast all transmission needs have already been planned for. 65. First, the Commission is authorized not simply to make generic findings but also to act on generic factual predictions. 96 To state that the facts in a particular region run counter to the Commission's assessment of the future course of events is to argue either that present circumstances can be expected to persist into the future or that certain basic principles, such as the proposition that transmission developers are more likely to invest if they have a mechanism by which their costs will be allocated, do not apply in the region. We do not find the latter sort of claim to be credible, and the former claim simply overlooks the fact that the present is not a prediction of the future. The Commission is authorized to make rules with prospective effect that will prevent situations that are inconsistent with the FPA from occurring, which means that it is authorized to consider how the future may be different from the present if the rules it proposes are not adopted. We thus also reject Sacramento Municipal Utility Districts' claim that the Commission cannot act unless it shows the existence of an “actual problem” in a particular region, a claim that lies at the root of all the arguments that petitioners make on this point. An “actual problem” is what one has when a theoretical threat comes to fruition. To insist that the Commission must identify the existence of an actual problem in the present before it can act is thus to deny that a theoretical threat that one reasonably concludes exists can be a basis for action. Such a conclusion is inconsistent with the cases we have cited on this point. 97 96 Associated Gas Distributors, 824 F.2d at 1008. 97 See, e.g., BNSF Railway Co., 526 F.3d at 778. 66. In addition, these arguments overlook the fact that in Order No. 1000, the Commission identifies a minimum set of requirements that must be met to ensure that transmission planning processes and cost allocation mechanisms result in Commission-jurisdictional services being provided at rates, terms, and conditions that are just and reasonable and not unduly discriminatory or preferential. Given that the requirements are minimum requirements, it would not be surprising that some current practices in some regions may already satisfy many of them. If that is the case, the public utility transmission providers concerned need only show in their compliance filing how current practices in their regions satisfy the Commission's standards. This does not mean that the reforms are not needed, as all of these requirements are not satisfied in all regions. We thus do not consider Alabama PSC's proposal of a regional or case-by-case approach for applying these reforms to be appropriate or necessary. We also disagree with Southern Companies and others that assert that there is not an issue to be remedied in their respective regions. As we note above, if public utility transmission providers believe that they already satisfy the minimum requirements in Order No. 1000, they may seek to demonstrate this in their compliance filings. 67. The concept of minimum requirements supplies the answer to Southern Companies argument that there is no basis for requiring them to adopt the nonincumbent transmission developer reforms of Order No. 1000 because they do not have a federal right of first refusal and because there are no restrictions on nonincumbent transmission projects in the SERTP planning process. Southern Companies also note that to date no nonincumbents have proposed projects in SERTP. They attribute this to incumbents, who they argue have developed a robust transmission grid and are adequately investing in transmission. However, the purpose of the minimum requirements for nonincumbent transmission developers is to provide objective criteria that can help ensure that the lack of nonincumbent participation will not be attributable to lack of equal treatment or some other reason identified in Order No. 1000 as an impairment to the identification and evaluation of more efficient or cost-effective alternatives. Moreover, if the requirements of Order No. 1000 are in fact already met in SERTP, then Southern Companies need only show in their compliance filing how current practices satisfy the Commission's requirements. Finally, Southern Companies state the Commission has no authority to impose nonincumbent development rights, but the Commission is not imposing any such rights in Order No. 1000. It is simply establishing minimum requirements for the treatment of nonincumbent transmission developers in the transmission planning process. These requirements do not confer any rights to develop a facility. They only confer a right to have a proposal considered. 68. Some petitioners confuse agency judgments based on legislative facts, i.e., factual inferences made in light of the policy underlying a statute, with formal academic theories. Southern Companies maintain that the theoretical basis of Order No. 1000 does not constitute good theory by scientific standards. 98 California ISO argues that the Commission's hypothesis that the absence of a regional cost allocation method will cause rates to be unjust or unreasonable is not based on an established economic theory and the Commission cites no peer-reviewed or other economic analysis that supports its conclusion. 98 See, e.g., Southern Companies. 69. The courts have specifically rejected such notions. The court in Associated Gas Distributors clearly distinguished between generic factual predictions that are commonly made in rulemakings and the practice of economics as an academic discipline. 99 The court criticized the use of another case, Electricity Consumers Resource Council v. FERC, 100 to invoke economic theory as a basis for decision making in a way that is similar to the way that Southern Companies and Ad Hoc Coalition of Southeastern Utilities invoke economic theory. For example, Southern Companies state that “FERC has pointed to no * * * established theory (such as marginal pricing at issue in Electricity Consumers ) upon which it may rely to support the application of Order No. 1000's requirements to the Southeast.” 101 The court in Associated Gas Distributors stated that “[c]learly nothing in Electricity Consumer's reference to `economic theory' was intended to invalidate agency reliance on generic factual predictions merely because they are typically studied in the field called economics.” 102 99 Associated Gas Distributors, 824 F.2d at 1008. 100 747 F.2d 1511 (D.C. Cir. 1984) ( Electricity Consumers ). 101 Southern Companies at 16. 102 Associated Gas Distributors, 824 F.2d at 1008; accord Sacramento Municipal Utility District v. FERC, 616 F.3d 520, 531 (D.C. Cir. 2010) (stating that “[n]either [ Electricity ] Consumers nor any other case law prevents the Commission from making findings based on `generic factual predictions' derived from economic research and theory.”). 70. This is the case because the court recognized that there was no reason that an agency must demonstrate the validity of well-established general principles such as “that competition will normally lead to lower prices.” 103 Southern Companies and Ad Hoc Coalition of Southeastern Utilities confuse a theoretical threat, a potential threat that has not yet materialized, with a theory used in an academic discipline, an area of activity that is not comparable to the tasks or responsibilities entrusted to a regulatory agency. The type of principles that the Commission has relied upon here are fully commensurate with those that the court in Associated Gas Distributors said the Commission could utilize when addressing matters that fall within its area of expertise. For these same reasons, we disagree with the argument of California ISO that the Commission's finding that the absence of a cost allocation method will cause rates to be unjust or unreasonable must be based on an established economic theory and that the Commission must cite a peer-reviewed or other economic analysis that supports its conclusion. 103 Associated Gas Distributors, 824 F.2d at 1009. 71. Moreover, we note that the substantial evidence standard does not require scientific certitude, a point which serves to dispel the confusion between theoretical threats and scientific theories. It only requires evidence that a “reasonable mind might accept” as “adequate to support a conclusion.” 104 In the context of rulemakings that involve legislative facts and generic factual predictions, the relevant criterion is whether the agency has provided a reasonable explanation of the problem presented and its solution to it. 105 A reasonable justification of a policy choice is not, and given the nature of the task involved cannot be, a scientific prediction. 104 Dickenson v. Zurko, 527 U.S. 150, 155 (1999). 105 See Federal Communications Commission v. Nat'l Citizens Comm. for Broadcasting, 436 U.S. 775, 814 (1978) (stating that “complete factual support in the record for the [agency's] judgment or prediction is not possible or required”); Industrial Union v. Hodgson, 499 F.2d 467 at 475-476 (1974). Bradford Nat'l Clearing Corp. v. SEC, 590 F.2d 1085, 1103-04 (D.C. Cir. 1978) (judicial deference to agency increases where agency decision rests primarily on predictions). 72. This point is confirmed by the discussion of theoretical threats in National Fuel. While some petitioners argue that this case requires substantial empirical verification of the existence of a theoretical threat, 106 a careful examination of what the courts says shows that this is not correct. The court did not specify any requirements for demonstrating the existence of a theoretical threat other than a showing that the threat is “plausible.” 107 A specific theoretical threat that it found met this requirement is stated in its entirety in the following language: 106 See, e.g., Sacramento Municipal Utility District. 107 National Fuel, 468 F.3d at 840. If a pipeline did not have an affiliated marketer, it would be in its interest to disseminate widely information relevant to operating constraints, capacity, and available receipt points, limited only by the cost of doing so. The affiliate relationship, however, creates an incentive for the pipeline to withhold information that otherwise would be made available to the affiliate's competitors. Withholding this information from non-affiliated shippers reduces their ability to arrange transactions efficiently. 108 108 Tenneco Gas v. FERC, 969 F.2d 1187, 1197 (1992) ( Tenneco Gas ). This description of a theoretical threat, which is drawn from an earlier decision cited by the court in National Fuel, corresponds precisely to the type of generic factual predictions discussed above that can justify agency action. It focuses on an incentive to withhold information that is created simply by the existence of an affiliate relationship. The court nowhere indicated that the plausibility of this theory depended on additional confirmation in the form of predictive economic models or extensive empirical data. 73. We thus disagree with Southern Companies that our use of words such as “may” and “could” in describing the anticipated effects of our reforms is evidence that these reforms are based on speculation or guesswork. When making a generic factual prediction, one is not predicting what will occur with certainty in every instance but rather what it is reasonable to conclude will occur with sufficient frequency and to a sufficient degree to conclude that the reforms are needed. Our use of words such as “may” and “could” in this context must be understood in this sense. 74. California ISO states that the Commission is not relying on economic theory to determine the means for achieving its goal but rather to establish a statutory predicate for action. However, a theoretical threat, which should not be confused with an economic theory, is precisely that, a predicate for agency action. The Commission's task is to assess current circumstances and to form a judgment on the steps necessary to avoid adverse effects on rates that it concludes are likely to arise if the present situation persists. We reject the idea that the only appropriate predicates for our action in this area are current failures that are traceable to inadequate transmission planning and cost allocation. That would mean that the only predicate for action is a fully realized threat, which is contrary both to the clear position taken by the courts, and, given the special problems involved in transmission development, to the public interest. 109 109 We reject for the same reasons the contention by Ad Hoc Coalition of Southeastern Utilities and Large Public Power Council that it is somehow significant that the Commission has effectively conceded that there is no evidence justifying Order No. 1000 and it is relying on theory alone. The Commission is acting on the basis of a theoretical threat whose existence has been demonstrated through a reasonable explanation. The identification of this threat is based “on an assessment of the relevant market conditions” and involves “a forecast of the direction in which future public interest lies” which “necessarily involves deductions based on the expert knowledge of the agency.” Ass'n of National Advertisers, 627 F.2d at 1162 (internal citations omitted). Such judgments will satisfy evidentiary requirements in rulemakings such as this one. Id. at 1161-62. 75. Finally, aside from National Fuel and Associated Gas Distributors, the only case that petitioners cite on rehearing dealing with evidentiary burdens in a rulemaking is Business Roundtable v. SEC. In that case, the court vacated a rule issued by the SEC on the grounds that it had not adequately considered the rule's effect upon efficiency, competition, and capital formation. A number of petitioners describe this case as involving matters that are “remarkably” or “strikingly” similar to the present proceeding. 110 However, Business Roundtable dealt with a failure by the SEC to comply with specific provisions of the Exchange Act and the Investment Company Act of 1940 that require it to assess the economic impacts of a new rule. The court described these requirements as being “unique” to the SEC. 111 Requirements that apply uniquely to the SEC under statutes that it administers do not address requirements that apply to this Commission under the FPA or its compliance with them. Moreover, the petitioners that rely on Business Roundtable point to no requirements in the FPA that are similar to those that applied to the SEC under its statutes and that might show how the case applies to this proceeding. We are, of course, required to consider the burdens that Order No. 1000 creates in relation to the benefits that we expect its requirements to produce. 112 However, we have done that and have concluded that, in light of the substantial investment in new transmission facilities that is generally expected to occur, the potential benefits from improved planning for new transmission facilities outweigh the burdens involved in complying with the requirements of Order No. 1000 to revise existing transmission tariffs and institute additional planning procedures. 110 See, e.g., Southern Companies; Ad Hoc Committee of Southeastern Utilities; and Large Public Power Council. 111 Business Roundtable at 1148. 112 See, e.g., National Fuel, 468 F.3d at 844; Associated Gas Distributors, 824 F.2d at 1019. Whether the Commission Has Identified a Theoretical Threat That Justifies the Removal of Federal Rights of First Refusal From Commission Jurisdictional Tariffs and Agreements and Has Shown That There Is a Reasonable Expectation That Competition in Transmission Development May Have Some Beneficial Impact on Rates 76. A number of petitioners contend that the Commission has not identified a theoretical threat that justifies the removal of federal rights of first refusal from Commission jurisdictional tariffs and agreements and that the Commission has not shown that there is a reasonable expectation that competition in transmission development may have some beneficial impact on rates. In fact, the record in this proceeding includes the type of evidence that courts have found appropriate in these circumstances. The Federal Trade Commission, one of the two federal agencies responsible for enforcement of the antitrust laws, supported the elimination of federal rights of first refusal as a means for promoting consumer benefit, support that it described as consistent with antitrust policy disfavoring regulatory barriers to entry in all but a limited number of instances. 113 While we possess our own expertise on barriers to entry when dealing specifically with the transmission grid, we note that the court in Tenneco Gas attributed considerable weight to analogous remarks by the Department of Justice that supported the identification of a theoretical threat. 114 113 Federal Trade Commission Comments on Proposed Rule at 2, 7. 114 Tenneco Gas, 969 F.2d at 1202. 77. Large Public Power Council maintains that Wisconsin Gas contains strictures regarding agency action premised on the benefits of competition that the Commission has violated. This case requires only “that there must be `ground for reasonable expectation that competition may have some beneficial impact.' ” 115 We think that there is a reasonable expectation that removal of a barrier to entry in the area of transmission development will have benefits of the type that competition creates in most industries. When the court in Wisconsin Gas stated that “unsupported or abstract allegations of the benefits that will accrue from increased competition” 116 do not form an adequate basis for agency action, it did this in response to the Commission's position on a complex rate issue whose effects were difficult to discern. Order No. 1000 does not involve a comparable situation. In fact, the court's full argument was that such allegations “cannot substitute for `a conscientious effort to take into account what is known as to past experience and what is reasonably predictable about the future.' ” 117 In fact, we have made just such an effort, and on that basis we find it quite reasonable to expect benefits from removing barriers to transmission development. Moreover, as noted above, this analysis is consistent with that of the Federal Trade Commission. 115 Wisconsin Gas, 770 F.2d 1144, at 1158 (quoting FCC v. RCA Communications, Inc., 346 U.S. 86, 96-7 (1953)). 116 Id. at 1158. 117 Id. (quoting American Public Gas Association v. FPC, 567 F.2d 1016, 1037 (D.C. Cir. 1977)). 78. We also see no significance in the fact that Wisconsin Gas involved competitive sales of natural gas in accordance with a policy established by Congress. Ad Hoc Committee of Southeastern Utilities and Large Public Power Council state that Congress has voiced no similar policy regarding competition in the development of transmission infrastructure, but it likewise has not objected to it. We thus do not see how this difference between Wisconsin Gas and this proceeding is controlling. Barriers to entry in this area can adversely affect rates, and our action to ensure that such barriers in the form of federal rights of first refusal do not adversely affect rates is well within the scope of actions that we are authorized to take under section 206 of the FPA. The fact that Congress expressed a policy regarding competitive sales of natural gas does not affect this conclusion. These points also address the objections by Oklahoma Gas and Electric Company and Sponsoring PJM Transmission Owners that the Commission has not supported the conclusion that competition between potential developers will result in more efficient or cost effective solutions or that this conclusion suffices to support Commission action under section 206. 79. Xcel and MISO Transmission Owners Group 2 argue that the Commission has not explained why problems created by federal rights of first refusal cannot be dealt with through individual complaints. Rights of first refusal create barriers to participation in the transmission development process. To require nonincumbent transmission developers to overcome those barriers solely through individual complaint proceedings, requiring litigation each time they seek to engage in the development process would create expense, delay, and uncertainty that would serve as a further disincentive to participation. That is, they would have to invest in project development and participate in an extensive regional transmission planning process, and if the project is then taken over by an incumbent transmission developer/provider who exercises a federal right of first refusal, they would have to invest still more time and resources in litigation. As long as the federal right of first refusal remains in a Commission-approved tariff or agreement, their chances of succeeding in litigation would be severely diminished. They would likely forego participating in that region in the first place and place their efforts elsewhere. The remedy suggested by Xcel and MISO Transmission Owners Group 2 would thus itself act as a form of barrier to entry. 80. MISO Transmission Owners 2, Xcel, and MISO argue that the Commission has not identified an instance where federal rights of first refusal have led to adverse effects on rates, discrimination against a nonincumbent transmission developer, or failure by a nonincumbent to invest in a transmission facility. While the Commission did receive evidence that nonincumbent transmission developers experience discriminatory treatment, 118 we think the more important point is that the practical effect of a federal right of first refusal is to discourage investment by nonincumbent transmission developers. We do not think it is surprising that there is limited evidence of exclusion of nonincumbent transmission developers in a situation that discourages them from proposing projects in the first place. While Sponsoring PJM Transmission Owners contrast the evidence of specific discrimination provided in Order No. 888 to support open access transmission with the number of specific examples of barriers to participation by nonincumbent transmission developers in this proceeding, they fail to acknowledge that Order No. 888 and Order No. 1000 involve different factual circumstances and bases for Commission action. Order No. 888 dealt with instances of undue discrimination in transmission access involving entities that were already connected to the transmission grid. Order No. 1000, by contrast, deals as much or more with the effect on rates of excluding entities whose ability even to become involved in the transmission planning process is being hindered from the outset. 118 See LS Power Comments on Proposed Rule at 3. 81. MISO Transmission Owners 2 state that the Commission ignored the example of nonincumbent transmission developer participation in CapX2020, which they maintain shows that existing construction rights are not a disincentive to investment, at least with respect to the Midwest ISO. 119 However, MISO Transmission Owners 2 do not identify any nonincumbent transmission developer that independently proposed a transmission project and was able to develop it despite the existence of a federal right of first refusal, and initially referred only to certain transmission dependent utilities that had been “renters” of the transmission system” 120 but that had chosen to invest in and own a portion of CapX2020. 121 While the Commission supports investment in transmission infrastructure by transmission dependent utilities, the existence of a single joint project like CapX2020 does not demonstrate that nonincumbent transmission developers are treated in a manner that is not unduly discriminatory or preferential. 119 Midwest Transmission Owners 2 Petition for Rehearing at 12. 120 Midwest Transmission Owners Reply Comments on Proposed Rule at 14. 121 Midwest Transmission Owners Comments on the Proposed Rule at 37 and n.89. Midwest Transmission Owners 2 consists of all the entities that compose Midwest Transmission Owners, with the exception of American Transmission Company LLC. 82. We disagree with Baltimore Gas & Electric that if our concern is the effect of federal rights of first refusal on transmission rates, we should deal with rates directly rather than federal rights of first refusal. Barriers to entry affect markets in various ways. These include their ability to discourage innovation. Federal rules should not prevent consumers from being able to benefit from the full range of advantages that competition can provide, which the preservation of barriers to entry does not allow. 83. We also disagree with Baltimore Gas & Electric that our rationale for eliminating federal rights of first refusal has no applicability to the transmission owner members of PJM because they have relinquished all transmission planning decisions to PJM and thus have no economic incentive to discriminate against nonincumbents. Even if the transmission owner members of PJM have no economic reason to object to development by nonincumbent transmission developers, this does not mean that federal rights of first refusal cannot adversely affect transmission rates. In other words, the Commission's rationale for requiring the elimination of federal rights of first refusal is not based solely on the economic incentives of incumbent transmission developers/providers; it is also based on the belief that expanding the universe of transmission developers offering potential solutions can lead to the identification and evaluation of potential solutions to regional needs that are more efficient or cost-effective. 84. These points apply equally to the argument of Sunflower, Mid-Kansas, and Western Farmers that it is not in the economic self-interest of public utility transmission providers in the SPP region to inhibit projects proposed by nonincumbent transmission developers because no state in the SPP region has enacted retail competition. For example, the fact that no state in the SPP region would stand for anticompetitive behavior by incumbent transmission developers/providers does not ensure that the potentially more efficient or cost-effective solutions offered by nonincumbent transmission developers will be considered. To do that, it is necessary to have a requirement that they be considered without having to adjudicate complaints of anticompetitive behavior that discourage proposals of alternative solutions. 85. We disagree with Xcel that requiring the elimination of a federal right of first refusal for reliability projects constitutes an overly broad remedy. While Xcel may be correct that it is less likely that a nonincumbent transmission developer will propose a competing transmission project that satisfies only a specific reliability need, a nonincumbent transmission developer may decide to propose a transmission project that satisfies several regional needs, including a specific reliability need. In that instance, the Commission is concerned that if an incumbent transmission developer/provider has the ability to assert a federal right of first refusal for a transmission project because it addresses a reliability need, then the nonincumbent transmission developer may be discouraged from proposing the transmission project that satisfies several regional needs. In addition, we note that nothing in Order No. 1000 prevents an incumbent transmission developer/provider from choosing to meet a reliability need or service obligation by building new transmission facilities that are located solely within its retail distribution service territory or footprint and that is not submitted for regional cost allocation. 122 122 Order No. 1000, FERC Stats. & Regs. ¶ 31,323 at P 262. 86. Ad Hoc Coalition of Southeastern Utilities asserts that the Commission's longstanding treatment of transmission as a natural monopoly undercuts its support for competition in the development of transmission infrastructure, but we see no contradiction here. In dealing with transmission as a natural monopoly, the Commission has explained that “[t]he monopoly characteristic exists in part because entry into the transmission market is restricted or difficult. * * * In addition, as unit costs are less for larger lines and networks, transmission facilities still exhibit scale economies.” 123 The Commission has never found that natural monopoly is antithetical to competition in all respects. Rather it has said “it is often better for a single owner (or group of owners) to build a single large transmission line rather than for many transmission owners to build smaller parallel lines on a non-coordinated basis.” 124 This is because “effective competition among owners of parallel transmission lines is unlikely, and often impossible, with existing practices and technology.” 125 This, however, does not mean that determining who will be the owner (or group of owners) of a particular line with natural monopoly characteristics cannot be done on a competitive basis or that competition in this connection would not promote benefits that are similar to the benefits that it produces elsewhere in our economy, in terms of improved facilities, enhanced technology, or better transmission solutions generally. 123 Promoting Wholesale Competition Through Open Access Non-Discriminatory Transmission Service by Public Utilities and Recovery of Stranded Costs by Public Utilities and Transmitting Utilities, Notice of Proposed Rulemaking and Supplemental Notice of Proposed Rulemaking, 60 FR 17662 (April 7, 1995), FERC Stats. & Regs. ¶ 32,514, at 33,070 (1995). 124 Id. 125 Id. 87. This point provides the answer to the Oklahoma Gas and Electric's statement that nothing Order No. 1000 will result in head-to-head competition between transmission service providers and PJM Transmission Owners' statement that the real issue is not competition between transmission service providers but rather which entity will be the monopoly owner of a transmission line. These statements overlook the fact that competitive forces can be harnessed in a number of ways. In this case, the Commission seeks to make it possible for nonincumbent transmission developers to compete in the proposal of more efficient or cost-effective transmission solutions. Oklahoma Gas and Electric Company states that the choice of new transmission projects will not be made in the market but rather in the stakeholder process, but this simply highlights the fact that competitive forces can be harnessed in various ways, including through the offering of competitive alternatives in a stakeholder process. Oklahoma Gas and Electric Company states that choices in the stakeholder process are based on uncertain estimates and inputs, but this is true of the transmission planning process whether or not it allows for competitive proposals. 88. The fact that incumbent transmission developers/providers may have certain advantages, such as rights of way and experience with the area in question, does not affect these conclusions. Incumbent transmission developers/providers may in some situations be well-equipped to prevail in a competitive process, but this is not an argument against competition. One cannot presume that an incumbent transmission developer/provider will always be better placed to construct and own a project and that the transmission planning process therefore will always reach the same result with or without a federal right of first refusal, as Baltimore & Electric Company maintains. The fact that an incumbent transmission developer/provider may possess certain capabilities does not imply that the incumbent transmission developer/provider is more capable than any possible nonincumbent transmission developer in all situations. 89. Nor do the effects of differing corporate structures, rates of return, or the other factors mentioned by Sponsoring PJM Transmission Owners affect our conclusion. These are all matters that can be considered in the transmission planning process, as can the issue of potential other costs and risks that Ad Hoc Coalition of Southeastern Utilities and Large Public Power Council propose may arise. Such matters may be relevant to the identification of more efficient or cost effective solutions. We do not see how they require one to conclude that competition will not promote more efficient or cost-effective solutions. 90. Finally, the nonincumbent reforms of Order No. 1000 are not based on the assumption that vertical integration is unduly discriminatory. Southern Companies argues that vertical integration provides efficiencies and benefits to consumers, and we do not deny that this may be the case in some situations. However, if it is, we would expect that vertically-integrated public utilities will be well positioned to compete in a transmission development process that is open to nonincumbent transmission developers. Southern Companies argument against nonincumbent transmission developer participation confuses the concept of vertical integration with that of monopoly. The existence of vertical integration does not imply that the vertically integrated public utility must be a monopoly. The emergence of competitive generation markets makes it no longer possible to argue that vertically integrated utilities are natural monopolies in all aspects of electric service. 126 In short, vertical integration itself is not unduly discriminatory, but there is no basis for claiming that vertical integration requires the exclusion of nonincumbent transmission developers. 126 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, at 31,642 (1996) (noting Congressional recognition of “rising costs and decreasing efficiencies of utility-owned generating facilities” and also describing the emergence of “non-traditional power producers * * * [that following the enactment of the Public Utility Regulatory Policies Act of 1978] began to build new capacity to compete in bulk power markets”), 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 (D.C. Cir. 2000), aff'd sub nom. New York v. FERC, 535 U.S. 1 (2002). See also, Morgan Stanley Capital Group, Inc. v. Public Utility District No. 1 of Snohomish County, Washington, 554 U.S. 527, 535-36 (2008) (stating that “[s]ince the 1970's * * * engineering innovations have lowered the cost of generating electricity and transmitting it over long distances, enabling new entrants to challenge the regional generating monopolies of traditional utilities”). Whether the Burdens Imposed by the [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%3A2012-12418. Public record. Not legal advice.