Richard J. Campbell Specialist in Energy Policy
Adam Vann Legislative Attorney
Perhaps the most contentious electricity transmission financing issue is cost
allocation for new interstate transmission lines—that is, deciding which
electricity customers pay how much of the cost of building and operating a
new transmission line that crosses several states. This report provides
background and analysis of current transmission cost allocation policy and
For many years, the Federal Energy Regulatory Commission (FERC) declined to go
beyond establishing general principles as set forth in its Order No. 890,
which addressed “undue discrimination and preference” in the providing of
transmission services. Transmission cost allocation proposals made by
transmission service providers were therefore reviewed by FERC to ensure
compliance with the general principles outlined in Order No. 890 and the
Federal Power Act (FPA). However, there were calls for FERC to provide a
clearer framework for cost allocation. The decision of the Seventh Circuit
in Illinois Commerce Commission v. FERC, to reject a cost
allocation plan approved by FERC which would have permitted “socialization” of the
costs for some new transmission projects (i.e., allowing the costs to be spread
widely among ratepayers in the PJM Interconnection, even those who do not
substantially or clearly benefit from a project) encouraged FERC to seek
more clarity with respect to cost allocation. Congress also entered the
fray in the form of legislative proposals that would amend the Federal Power
Act to include new transmission cost allocation guidelines that FERC would
be required to follow.
In 2009 FERC decided to take an in-depth look at cost allocation and other
transmission planning issues as part of a new docket. FERC observed that
its “best remaining opportunity to eliminate barriers to new transmission
construction may therefore be to provide greater certainty in its policies
for allocating the cost of new transmission facilities, particularly for
facilities that cross multiple transmission systems.” FERC requested
comments from stakeholders on transmission planning issues.
After receiving and reviewing comments from stakeholders and offering a
proposed rule in 2010, FERC published Order No. 1000, a final rule
reforming FERC’s transmission planning and cost allocation requirements
for transmission service providers, on July 21, 2011. The final rule required
transmission service providers to (1) participate in a regional transmission
planning process; (2) amend their transmission tariffs to provide for
consideration of public policy; (3) remove from their tariffs a federal
right of first refusal for certain new transmission facilities; and (4)
improve coordination between neighboring transmission planning regions.
The Final Order comes as state renewable portfolio standards and the upcoming
U.S. Environmental Protection Agency (EPA) regulations for coal power
plants may drive demand for new transmission lines. The uncertainty
regarding the implications for generation resources of upcoming EPA
regulations has caused some utilities to delay decisions on building new generation,
with plans to satisfy (at least interim) power needs from power markets until
the regulatory clarity they seek is provided.
This report analyzes recent developments concerning transmission cost allocation
leading up to Order No. 1000, as well as the contents of the order and
their potential impact on the transmission planning process in the future.
FERC acknowledges that some key questions may only be answered in the
compliance filing process.
Date of Report: December 18, 2012
Number of Pages: 25 Order Number: R41193 Price: $29.95
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