Transmission Planning Reforms Finalized in FERC Order No. 1920

On May 13, 2024, the Federal Energy Regulatory Commission (FERC) issued Order No. 1920, the final rule of highly anticipated reforms to regional transmission planning processes under its jurisdiction. Order No. 1920 is the culmination of extensive rulemaking proceedings initiated by FERC three years ago.¹ While FERC undertook this evaluation of potential transmission process reforms on its own accord, pursuant to its authority under section 206 of the Federal Power Act (FPA), Order No. 1920 builds on several interrelated federal goals underpinning the momentum of the energy transition and long-term electric grid reliability. Namely, the Biden administration set an ambitious target of zero carbon emissions in the domestic power sector by 2035², which will require the continued deployment of substantial new renewable energy generating facilities.

However, renewable resources are often situated far from demand centers³ and may languish in lengthy, inefficient generator interconnection queues.⁴ Extreme weather events causing disruptions to grid operations and reliability — such as winter storms and heat waves — also highlighted the need for expansive transmission buildout in order to mitigate constraints during periods of abnormally high demand and/or low intra-regional generation. Further, more transmission capacity is necessary to accommodate load growth due to new data centers supporting artificial intelligence and other energy-intensive technologies.

Construction of new interstate, high-voltage transmission in the US has slowed in recent years. Historically, incumbent electric utilities subject to FERC oversight have modeled and built transmission in a siloed fashion; long-distance lines were typically eschewed in favor of smaller, local lines that would satisfy short-term reliability requirements and bolster transmission capacity within the footprint of that utility. Most transmission is built and operated by utilities; merchant developers have not (yet) captured much market share.

View full image: Buildout of High-Voltage Transmission Lines, 2010 – 2023 (PDF)

Given the rapid increase of renewable generation — and attendant lack of infrastructure to carry it to markets — FERC and industry participants identified the need for a modern, competitive approach to regional transmission. It is important to note that FERC contemplated this rulemaking as an effort to synergize disparate state policies, clarify cost allocation assignments, and improve existing processes to promote cooperation across borders. Stated plainly, the final rule is not a new federal policy mandate or amendment to law; it aims to apply a consistent set of methodologies and principles across the seven regions under its jurisdiction.

Substantive Reforms & Provisions

Accordingly, Order No. 1920 revises a number of key provisions to transmission planning processes in its pro forma Open Access Transmission Tariff (OATT) and pro forma Large Generator Interconnection Agreement (LGIA), including:⁵

• Long-Term Planning
  • Transmission providers must use a 20-year planning horizon for projected new resources (expanded from the prior 3- to 5-year timeline).
    • Transmission providers are also required to conduct this long-term regional transmission planning every 5 years.
  • In this planning process, transmission operators must use the "best available data" to develop and evaluate long-term regional transmission needs.
    • e.g., Generation unit retirements, interconnection requests and withdrawals, applicable laws and regulations, state-level integrated resource plans, and policy goals and corporate commitments.
  • Transmission providers are required to model three separate scenarios as part of this planning process in order to incorporate and emphasize certain specific factors and data.
  • Transmission operators may also consider the use of Grid Enhancing Technologies — such as dynamic line ratings, advanced power flow control devices, and advanced conductors.
• Benefits Evaluation
  • Regional transmission planners must measure and consider at least seven (7) specified economic and/or reliability benefits:
    1. Avoided or deferred reliability transmission facilities and aging infrastructure replacement;
    2. 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;
    7. Capacity cost benefits from reduced peak energy losses.
  • Also, projects that have been identified multiple times in existing generator interconnection queue backlogs — that would address transmission needs — can be considered in planning processes.
• Selection Criteria
  • Transmission providers are required to establish an evaluation process included in their respective FERC-jurisdictional OATTs, using the following criteria to select long-term transmission projects:
    • Long-term transmission needs of the system.
    • Benefits measurement in accordance with the preceding seven-factor criteria.
    • Designation of a point in the selection process where transmission providers will determine if the project will move forward.
  • The project selection criteria must be transparent, not unduly discriminatory or preferential, prioritize cost-effective facilities, and seek to maximize benefits accounting for costs over time.
  • If a project is not deemed to satisfy the selection criteria, states and interconnection customers are granted the opportunity to fund all, or a portion, of the cost of such facilities.
• Cost Allocation
  • Transmission operators must file one or more ex ante methods to allocate the costs of long-term regional transmission facilities that are selected for development.
  • Prior to compliance, transmission operators are required to hold a six-month engagement period with relevant state entities.
    • Those relevant state entities may enter into an agreement with transmission operators before selection, or up to six months after selection but still prior to compliance, to effectuate cost allocation assignments for a new regional transmission facility.
    • Note: State-level regulators evaluate and approve the necessary permits for the construction of transmission lines, so Order No. 1920 incorporates the cost allocation process at an earlier stage in order to improve efficiency and, ostensibly, ensure that commercially viable projects are considered from the earliest juncture possible.
• Right-Sizing
  • Transmission providers may identify opportunities to modify existing facilities to increase their transfer capability ("right-sizing"), while granting incumbent owners the right to refuse right-sizing.
  • Transmission providers are required to act in a transparent manner with regard to local planning information as well as conduct stakeholder meetings during the regional planning cycle about relevant (local) processes.

Discussion — and Dissent

At the special meeting commemorating the release of Order No. 1920, FERC staff indicated that the comments, reply comments, and supplemental information gathered over the course of the past three years comprised the largest procedural record in the history of the agency.

FERC commissioners voted 2 to 1 in favor of adopting the final rule. Chairman Willie L. Phillips stated that the rule "cannot come soon enough" amid a "transformational moment for the grid," due to significant load growth and the "inflection point of the resource mix." Chairman Phillips also reiterated his support for the preservation of states' rights as well as the important role of the Joint Federal-State Task Force on Electric Transmission during the development of the final rule. Order No. 1920 represents an "important and necessary step to meet America's energy needs," per Chairman Phillips.

FIGURE 2. LOAD GROWTH IN EMERGING SECTORS⁶

In her concurrence, Commissioner Allison Clements remarked that "planning with a longer-term view will avoid piecemeal options that ultimately harm consumers." Commissioner Clements added that "this rule is a reliability and affordability imperative," and it is the legal responsibility of FERC to "protect consumers" in light of the broader energy transition, not to affect its trajectory or seek to alter individual state-level policies.

In his dissenting comments, Commissioner Mark Christie stated that the final rule "is not a compromise," and did not "preserve the state role" as reflected in the NOPR from 2022, among many other substantive concerns. Further, Commissioner Christie invoked the "consumer protection" duty of the FPA, and asserted that FERC had not fulfilled its obligation. Commissioner Christie said that "FERC has no business promoting individual policies." Ultimately, Order No. 1920 is "not about reliability," according to Commissioner Christie, and instead is a "shell game" aimed to divert massive costs from consumers (as "involuntary beneficiaries") to for-profit renewable generating companies and state policy interests. "States have no ability to agree or disagree" with the criteria used in evaluating projects and mandating benefits, Commissioner Christie said.

Prospective Legal Challenges

Now that Order No. 1920 has been issued, the first — but not only — hurdle has been cleared. It is possible, if not likely, that FERC will contend with legal challenges to certain reforms outlined in the final rule. FERC preemptively avoided one potential issue by declining to adopt the NOPR proposal establishing a conditional federal right of first refusal (ROFR). By electing not to reinstate the federal ROFR — originally revoked by Order No. 1000⁷— incumbent transmission owners do not have the ability to prevent competitors from bidding and building new interstate facilities. FERC signaled that this matter may be considered in future proceedings.

However, disputes may arise over the perceived fairness of the costs relative to projected benefits. On a regional scale (i.e., interstate), it is inherently more complex to assess how the benefits of a new transmission line will be distributed across the rate base, which Order No. 1920 seeks to reconcile. However, certain states and potentially even regional grid operators may object to this cost allocation methodology and bring forth challenges in the courts, either with respect to the final rule itself or down the line for individual projects.

In his dissenting remarks, among other issues, Commissioner Christie raised the Major Questions Doctrine, perhaps leading to a case based on FERC overstepping its vested authority as an administrative agency. Commissioner Christie also invoked the idea of political motivation and external influence, accusing FERC of rushing the adoption of Order No. 1920 to support partisan policy goals beyond the scope of the agency.

Implementation Timeline & Outlook

Order No. 1920 will be effective 60 days following publication in the Federal Register. Regional grid operators are then directed to submit respective compliance filings to FERC within 10 months of that date.

Given the likelihood of some opposition and eventual resolution in the courts — akin to Order No. 1000, which was litigated in a federal court and ultimately upheld⁸— these respective compliance filings should be effective in 2025 or perhaps 2026. Barring any significant legal delays stemming from appeals, the provisions of Order No. 1920 will go into effect and, due to the long-term and forward-looking nature of these reforms, the ensuing decades of transmission planning should fall on a more certain trajectory to support the energy transition.

Recent Federal Rules & Programs Incentivizing Transmission Development

_{1 BUILDING FOR THE FUTURE THROUGH ELECTRIC REGIONAL TRANSMISSION PLANNING AND COST ALLOCATION, Advanced Notice of Proposed Rulemaking, Federal Energy Regulatory Commission (issued on July 15, 2021).
2 EXECUTIVE ORDER 14057, Executive Office of the President (December 8, 2021).
3 "Turning to Transmission: A Critical Connection in the Energy Transition," White & Case (October 8, 2021).
4 "Ready for Renewables: FERC Targets Interconnection Queue Reform," White & Case (July 5, 2022).
"FERC Approves PJM Generator Interconnection Queue Reforms," White & Case (December 8, 2022).
5 187 FERC 61,068, BUILDING FOR THE FUTURE THROUGH ELECTRIC REGIONAL TRANSMISSION PLANNING AND COST ALLOCATION (May 13, 2024).
6 "Electricity Demand Growth and Forecasting in a Time of Change," The Brattle Group (May 2024).
7 Transmission Planning & Cost Allocation by Transmission Owning & Operating Pub. Utils., Order No. 1000, FERC Stats. & Regs. 31,323 (2011) ("Order No. 1000"), order on reh'g, Order No. 1000-A, 139 FERC 61,132, order on reh'g, Order No. 1000-B, 141 FERC 61,044 (2012).
8 South Carolina Public Service Authority v. FERC, No. 12-1232 (D.C. Cir., August 15, 2014).
9 COORDINATION OF FEDERAL AUTHORIZATIONS FOR ELECTRIC TRANSMISSION FACILITIES, Final Rule, U.S. Department of Energy (May 1, 2024).
10 NATIONAL ENVIRONMENTAL POLICY ACT IMPLEMENTING PROCEDURES, Final Rule, U.S. Department of Energy (April 30, 2024).
11 "Biden-Harris Administration Announces Initial List of High-Priority Areas for Accelerated Transmission Expansion," U.S. Department of Energy (May 8, 2024).
12 187 FERC 61,069 (May 13, 2024).
13 INFRASTRUCTURE INVESTMENT AND JOBS ACT, U.S. Public Law No. 117-58 (November 15, 2021).}

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