In a landmark development, the US energy regulator, the Federal Energy Regulatory Commission (FERC), notified the much-anticipated transmission reforms, which are expected to enable the accelerated development of high voltage power lines for greater renewable energy integration to help the country achieve its goal of a completely decarbonised power system by 2035.
On May 13, 2024, FERC issued the final rules (RM21-17-000), Order No. 1920, titled ‘Building for the future through electric regional transmission planning and cost allocation and generator interconnection’ to improve its regional transmission planning and cost allocation requirements. On the same day, FERC also notified Order No. 1977 (RM22-7-000) revising its regulations governing ‘Applications for permits to site interstate electric transmission facilities’ under section 216 (b) of the Federal Power Act (FPA). It clarifies FERC’s backstop siting authority originally established by Energy Power Action 2005 and subsequently amended by the Infrastructure Investment and Jobs Act (IIJA), 2021. The two rules make the first significant FERC action on transmission policy in over a decade. The rules apply to grid operators operating across the lower 48 US states (which is Eastern Interconnection and Western Interconnection) with the exemption of Electric Reliability Council of Texas (ERCOT).
Transmission planning and cost allocation reforms
In a 2-1 decision, FERC adopted Order No. 1920, which marks the first time in over a decade that FERC addressed regional transmission policy and the first time it squarely addressed the need for long-term grid planning. The grid rule adopts specific requirements for transmission providers to conduct long-term planning for regional transmission facilities and determine how to pay for them. It reflects tens of thousands of pages of comments, filed over the past three years since July 2021 when FERC first published the related advance notice of proposed rulemaking (ANOPR) and NOPR in April 2022.
It builds on FERC’s previous open access transmission reforms through Order Nos. 888 (1996), 890 (2007), and 1000 (2011). Through these orders, FERC incrementally developed the requirements governing regional transmission planning and cost allocation processes to ensure that FERC-jurisdictional rates remain just and reasonable.
The latest proposed reforms aim to remedy deficiencies in the existing requirements in the context of emerging sector dynamics. Key among them is the fact that thousands of proposed clean energy projects are stalled in the regional interconnection queue, which had risen to 2,600 GW by the end of 2023 from 1,900 GW in 2022, 1,300 GW in 2021 and 800 GW in 2020. Further, severe weather events are becoming more frequent and extreme. While these factors contribute to a greater need to expand the national grid, development is occurring piecemeal and inefficiently outside of the regional transmission planning process.
The rule requires grid operators to conduct and update long-term transmission planning over a 20-year time period to anticipate future needs. This must be conducted at least once every five years using a diverse set of at least three scenarios. It also provides for cost-effective expansion of transmission that is being replaced, when needed, known as ‘right-sizing’ transmission facilities. The providers must give the incumbent transmission owners a right of first refusal (ROFR) to develop these right-sized replacement facilities. FERC opted not to reinstate the federal ROFR, which was included in the NOPR. It expressly provides for the states’ pivotal role throughout the process of planning, selecting, and determining how to pay for transmission lines.
The draft final rule requires transmission providers to consider a broad set of benefits while planning new facilities. Particularly, they may use at least seven economic and reliability benefits for selecting long-term regional facilities. These are avoided or deferred reliability transmission facilities and ageing infrastructure replacement; either reduced loss of load probability or reduced planning reserve margin; production cost savings; reduced transmission losses; reduced congestion due to transmission outages; mitigation of extreme weather events and unexpected system conditions; and capacity cost benefits from reduced peak losses. Additionally, transmission providers must include in their respective open access transmission tariffs (OATTs) an evaluation process to identify and evaluate regional transmission facilities for potential selection.
In the event of delays or cost overruns, grid operators must re-evaluate long-term regional transmission facilities that previously were selected in a regional transmission plan. Also, they must consider facilities that address interconnection-related needs identified multiple times in existing generator interconnection processes, but that have not been built. Notably, the use of grid enhancing technologies (GETs) such as dynamic line ratings (DLR), advanced power flow control devices, advanced conductors and transmission switching must be considered.
For cost allocation, the rule requires transmission providers to file one or more ex-ante formula to allocate the costs of selected long-term regional transmission facilities. Grid providers are also required to hold a six-month engagement period with relevant state entities regarding cost allocation methods and/or a state agreement process prior to compliance filing. The rule provides additional flexibility on cost allocation by permitting transmission providers to adopt a state agreement process, agreed to by relevant state entities, which could occur before, as well as up to six months after selection, for its participants to determine, and transmission providers to file, a cost allocation method for specific regional grid facilities. The rule requires transmission providers to include a process allowing states and interconnection customers to fund all or a portion of the cost of the long-term regional transmission facilities, which otherwise will not meet the provider’s selection criteria. Further, customers will pay only for projects from which they benefit.
The transmission operators are expected to be transparent regarding local transmission planning and conduct stakeholder meetings during the regional planning cycle about the local process. They should also revise the existing interregional transmission coordination processes to reflect the new planning reforms.
As the next step, Order 1920 will become effective 60 days after publication in the Federal Register. The compliance filings for most of the rule’s requirements are due within 10 months of the effective date, while filings to comply with the interregional transmission coordination requirements are due within 12 months of the effective date.
FERC’s backstop transmission siting authority
The new rule (Order 1977), which was favourably voted for by all three FERC commissioners, updates the process to be used in the limited circumstances when FERC exercises its backstop siting authority. The rule clarifies FERC’s expanded siting authority in the IIJA to issue a permit to build or modify electric transmission facilities in the National Interest Electric Transmission Corridor (NIETC) [designated by the US Department of Energy (DOE) under Section 216 (a)] if a state has denied an applicant’s request to site transmission facilities. IJJA also amended section 216 (e) to require FERC to determine, as a precondition to a permit holder exercising eminent domain authority, that the permit holder has made good faith efforts to engage with landowners and other stakeholders early in the permitting process. To implement the statutory authority as per IIJA, FERC added Part 50 to its regulations to define the permit application process and modified existing Part 380, which implements the National Environment Policy Act of 1969 (NEPA).
The final rule follows the NOPR issued in December 2022. The order includes a Landowner Bill of Rights, codifies an Applicant Code of Conduct as one way for applicants to demonstrate good-faith efforts to engage with landowners in the permitting process, and directs applicants to develop engagement plans for outreach to environmental justice communities and Tribes. The rule does not adopt the proposal to allow simultaneous processing of state and FERC siting applications, mainly due to the pushback from state regulators, which argued that it may encroach on state authority without yielding significant benefits. However, not eliminating the existing policy of a one-year delay of the relevant state siting applications and the commencement of FERC’s pre-filing process could contribute to lengthening the development timeline for some projects.
The Landowner Bill of Rights notifies landowners who would be affected by a proposed transmission line of their right to intervene in any open FERC proceeding. A transmission line applicant must include a copy of the rights with the pre-filing notification mailed to affected landowners.
The rules require three resource reports to be filed with the application, namely, an Air Quality and Environmental Noise Resource Report (which estimates emissions and noise from the proposed project and the corresponding impacts on air quality and the environment along with mitigation measures), an Environmental Justice Resource Report (which identifies environmental justice communities and describes the impact of projects on them along with mitigation measures), and a Tribal Resources Report (which consolidates existing requirements for information describing effects on Tribes, tribal lands and tribal resources). These reports reflect the focus on equity and inclusion and environmental issues in the power sector.
Further, applicants must develop and file an Environmental Justice Public Engagement Plan (describing outreach activities targeted at potentially affected environmental justice communities) as well as a Tribal Engagement Plan (that describes outreach activities that may affect Tribes) as part of their Project Participation Plan, which is a key element of the application process.
Order No. 1977 will take effect 60 days after publication in the Federal Register.
Challenges and the way forward
The effective and timely implementation of the rules is essential to accelerate the transmission buildout. Several lawmakers and industry players have welcomed the adoption of the latest rules, while some have reservations about the prospect of FERC overstepping its jurisdiction and impinging on states’ rights. Cost allocation has always been a contentious issue in the sector. Grid operators have to seek agreement among states in setting cost-allocation formulas, particularly for multistate power lines. The challenges ahead include disagreements over the fairness of cost allocation relative to perceived benefits, which could lead to legal challenges.
Notwithstanding these challenges, the new rules are expected to have a far-reaching impact on the future of the US transmission sector, which will support the country’s energy transition goals.
