Policy & Regulation

Renewable energy industry reacts to FERC’s ‘watershed’ transmission rules – Orders 1920 and 1977

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Renewable energy industry reacts to FERC’s ‘watershed’ transmission rules – Orders 1920 and 1977
FERC Chair Willie Phillips announces two landmark tranmission rules, Orders 1920 and 1977, during an open meeting on May 13, 2024. (Courtesy: FERC)

During an open meeting on May 13, the Federal Energy Regulatory Commission unveiled two transmission rulings that, in combination, represent a “watershed” moment for the U.S. energy system, according to Chair Willie Phillips.

“We’re implementing what Congress told FERC to do with regard to our limited siting authority under the Infrastructure Act,” Phillips said.

Order 1920

Order 1920, the regional transmission planning and cost allocation rule, is named as a tribute to the creation of the Federal Power Commission, FERC’s agency predecessor, in 1920. The notice of proposed rulemaking for regional transmission planning received approximately 1,400 pages of comments, which appears to be the largest record ever considered by the agency.

The rule passed by a 2-1 vote.

FERC’s Dave Borden said the draft final rule recognizes that long-term, forward-thinking regional transmission planning and cost allocation “is not occurring on a sufficient basis,” resulting in “piecemeal transmission expansion that represents relatively near-term transmission needs.”

“The status quo approach results in transmission providers investing in relatively inefficient, or less cost-effective, transmission infrastructure with the costs ultimately recovered through commission jurisdictional rates,” Borden said.

Under Order 1920, transmission providers must plan ahead at least 20 years. They must conduct this planning at least every five years and incorporate laws and regulations, integrated resource plans, fuel costs, policy goals, and corporate commitments. Transmission providers would be required to measure and use at least seven economic and reliability benefits for the evaluation and selection of long-term regional transmission facilities (listed in the updates below).

GO DEEPER: Episode 72 of the Factor This! podcast features Ari Peskoe, an expert on transmission policy and the director of the Electricity Law Initiative at Harvard, who shares why regional transmission expansion has stalled in the U.S. Subscribe wherever you get your podcasts.

On cost allocation, the draft final rule requires transmission providers to file one or more ex-ante methods to allocate the cost of long-term regional transmission facilities for those that are selected. They must also hold a six-month engagement period with state entities regarding cost allocation methods and/or a state agreement process.

The draft final rule also requires transmission providers to consider grid-enhancing technologies, including dynamic line ratings, advanced power flow control devices, advanced conductors, and advanced transmission switching, in regional planning processes, though it doesn’t go as far as mandating their use.

Transmission providers must adopt tariff provisions that provide a federal right of first refusal for a transmission provider to develop any right-sized facility. The rule declines to adopt the proposal of a conditional federal right of first refusal due to joint ownership. The rule also declined the proposal to limit the availability of the constructor work-in-progress incentive (CWIP). Any action on the CWIP incentive is more appropriately considered in a separate proceeding, FERC said.

In his dissent, FERC Commissioner Mark Christie said the rulemaking processes are meant to serve as a compromise, but Order 1920 was not. (Courtesy: FERC)

In his dissent, Commissioner Mark Christie said the rulemaking processes are meant to serve as a compromise, but Order 1920 was not. He said that the rule is not fair to consumers. He went on to add that the draft final rule differs, in his opinion, significantly from the proposed rule. He said there should have been another round of public comment to review the changes.

“We are a consumer protection agency and this rule utterly fails to protect consumers under our duty in the Federal Power Act,” Christie said. “Instead, this rule is a pretext to enact a sweeping policy agenda that Congress never passed.”

Order 1977

Order 1977, the backstop siting rule, is named for the statute that established FERC in 1977. All three commissioners voted in favor of the rule, which did not accept the proposal to eliminate the existing 1-year delay between relevant state siting applications and the commencement of the commission’s pre-filing process. The rule would have allowed state siting proceedings and the commission’s pre-filing process to proceed simultaneously.

Commissioner Allison Clements said the siting rule “appreciates the primary role that states play in siting transmission infrastructure,” while acknowledging that the long timeline to develop transmission infrastructure is a significant challenge. “I’m worried that this aspect of the rule may contribute to lengthening that development timeline for certain projects.”

Clements said the final siting rule addresses concerns that FERC received from states.

Watch the FERC open meeting:

Order 1977 updates: backstop siting rule

  • The draft final rule reconsiders NOPR proposal to eliminate the existing policy of a 1-year delay of the relevant state siting applications and the commencement of the commission’s pre-filing process. The NOPR would have allowed state siting proceedings and the commission’s pre-filing process to proceed simultaneously.
  • The draft final rule clarifies that FERC has the authority to issue permits to construct or modify electric transmission facilities in a national interest corridor if a state has denied a siting application.
  • The draft final rule updates and clarifies environmental information required for existing applicant resource reports and includes three new resource reports regarding proposed project impacts on air quality and noise on environmental justice communities and on tribal resources. Applicants must estimate emissions and noise of the proposed project, and the corresponding impacts on air quality and the environment. The report must also describe mitigation efforts. The final rule also establishes a notice limit near schools, hospitals, and homes.

Order 1920 updates: regional transmission planning and cost allocation rule

  • Under Order 1920, transmission providers must plan ahead at least 20 years. They must conduct this planning at least every five years and incorporate laws and regulations, integrated resource plans, fuel costs, policy goals, and corporate commitments.
  • Draft final rule requires transmission providers to measure and use at least seven economic and reliability benefits for the evaluation and selection of long-term regional transmission facilities: 1) avoided or deferred reliability transmission facilities and aging infrastructure replacement; 2) either reduced loss of load probability or reduced reserve planning margin; 3) production cost savings; 4) reduced transmission energy losses; 5) reduce congestion due to transmission outages; 6) mitigation of extreme weather events; 7) capacity cost benefits from reduced peak energy losses
  • Transmission providers must include in tariffs an evaluation process and selection criteria that they will use to identify and evaluate long-term regional transmission facilities.
  • On cost allocation, the draft final rule requires transmission providers to file one or more ex-ante methods to allocate the cost of long-term regional transmission facilities for those that are selected. They must also hold a six-month engagement period with state entities regarding cost allocation methods and/or a state agreement process.
  • Transmission providers must adopt tariff provisions that provide a federal right of first refusal for a transmission provider to develop any right-sized facility. The rule declines to adopt the proposal of a conditional federal right of first refusal due to joint ownership. The commission will continue to consider the proposal in other proceedings.
  • The rule does not adopt the proposal to limit the availability of the constructor work-in-progress incentive (CWIP). Any action on the CWIP incentive is more appropriately considered in a separate proceeding.

Industry reaction

The Solar Energy Industries Association (SEIA), which had engaged in the rulemaking proceeding over the past two years while advocating for reforms to the transmission planning process, lauded FERC’s new rules.

“Today’s final rule marks a significant turning point for America’s electric grid and our ability to meet growing demand for energy with reliable, low-cost power,” said Melissa Alfano, senior director of energy markets and counsel for SEIA. “We’re glad to see a consistent cost allocation methodology included in the final rule along with transmission planning requirements that are foundational to improving long-standing interconnection roadblocks across the country. As FERC clarifies their definition of ‘benefits’ to the grid, accounting for reliability and cost savings that solar and energy storage technologies deliver will also allow for smoother transmission planning for decades to come.”

The American Council on Renewable Energy (ACORE) had similar praise for FERC’s decision, arguing that the final regional transmission planning and cost allocation rule requires grid planners to implement “proven” best practices and efficiently plan the infrastructure needed to meet increasing electricity demand.

“We are pleased to see the Commission require long-term multiple scenario planning that incorporates a minimum set of benefits to demonstrate transmission’s value, data on all drivers of the need for transmission, and the use of grid-enhancing technologies and advanced conductoring,” said Ray Long, President and CEO of ACORE. “If properly implemented, the rule will also enable the delivery of power from cleaner and more affordable electricity generation that will benefit consumers all across America. We applaud FERC for its strong work during this proceeding.”

National business association Advanced Energy United said the current “piecemeal” approach to building transmission in the U.S. is causing the nation to miss out on more affordable energy.

“Families and businesses are paying the price for utilities’ and grid operators’ failure to address our critical electricity infrastructure needs,” said Heather O’Neill, President and CEO at Advanced Energy United. “Building more multi-state transmission lines unclogs the traffic jams on America’s electricity superhighways and unlocks our ability to keep up with our growing energy needs. This FERC Order sends the message that transmission planning needs to change, and recognizes that states deserve a central role in ensuring a reliable electric grid built for the future.”

Originally published in POWERGRID International.

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