FERC Finalizes Rule Overhauling Transmission Planning and Cost Allocation

On May 13, 2024, the Federal Energy Regulatory Commission (FERC) finalized its rule reforming transmission planning and cost allocation with an aim towards helping the United States meet its long-range transmission needs.

The rule establishes specific requirements addressing how transmission providers must conduct their long-term planning for regional transmission facilities and how they determine how to pay for these facilities. Among other things, providers must now produce a regional transmission plan of at least 20 years to identify their long-term needs and the facilities required to meet them. In addition, transmission providers must conduct this long-term planning at least once every five years, incorporating specific categories of factors that affect long-term transmission needs.

Under the rule, providers are required to measure and use at least seven enumerated economic and reliability benefits for the evaluation and selection of long-term regional transmission facilities. These seven benefits are:

1. 1. avoided or deferred reliability transmission facilities and aging infrastructure replacement;
   2. either reduced loss of load probability or reduced planning reserve margin;
   3. production cost savings;
   4. reduced transmission energy losses;
   5. reduced congestion due to transmission outages;
   6. mitigation of extreme weather events and unexpected system conditions; and
   7. capacity cost benefits from reduced peak energy losses.

Additionally, transmission providers must now include in their tariffs an evaluation process, including selection criteria, that they will use to identify and evaluate long-term regional transmission facilities for potential selection. Providers’ selection criteria must be transparent and not unduly discriminatory or preferential, aim to ensure that more efficient or cost-effective long-term regional transmission facilities are selected, and seek to maximize benefits accounting for costs over time without over-building transmission facilities.

With respect to cost allocation, the draft final rule requires transmission providers to file one or more ex ante methods to allocate the costs of long-term regional transmission facilities that are selected. Transmission 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. The draft final 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 long-term regional transmission facilities.

Recognizing that local transmission planning may affect the more efficient or cost-effective regional transmission needs identified in long-term regional transmission planning, the draft final rule requires transmission providers to adopt enhanced transparency for local transmission planning information and identify potential opportunities to “right-size” replacement transmission facilities to more efficiently or cost-effectively address long-term transmission needs. Transmission providers must also adopt tariff provisions that provide a federal right of first refusal for a transmission provider to develop any “right-sized” facility. 

The final rule can be found here.

If your organization has any questions or requires assistance, we encourage you to reach out to Dykema’s Energy team for assistance.