TRANSMISSION PLANNING AND EXPANSION: CONCERNS WITH FERC ORDER 1000

1. TRANSMISSION PLANNING AND EXPANSION:CONCERNS WITH FERC ORDER 1000 Sue Sheridan President and Chief Counsel Coalition for Fair Transmission Policy EEI Transmission and Distribution Conference April 2012

2. CFTP • The Coalition was formed in January of 2010 to address emerging concerns on the direction of transmission policy: • Efforts to broadly socialize the costs of new transmission projects intended to develop remote renewable energy resources, without regards to the beneficiaries of such development. • Efforts to give FERC new authority to develop top-down, interconnection-wide plans and/or over-ride local and regional transmission planning efforts.

3. Membership • Membership composed of geographically diverse electric utilities operating in both organized and traditional vertically-integrated markets. • Members include CMS Energy, ConEdison, DTE Energy, Progress Energy, Public Service Enterprise Group, SCANA Corporation, and Southern Company

4. CFTP Principles • Transmission Planning • Any effort to improve transmission planning must build on existing regional processes, and be inclusive of all stakeholders. • Transmission planning must be initiated at the local and regional level based on the needs of the customers who bear the burden and benefits of the decisions driven by the planning processes.

5. CFTP Principles • Cost Allocation • Costs for new transmission investments required to meet reliability standards must be allocated to the area(s) where the investments are required to meet the standards. • Costs for new transmission investments not otherwise required to meet reliability standards must be allocated to the parties in a manner that clearly aligns cost responsibility with cost causation.

6. Transmission and Renewables • If remotely located renewable resources provide the least-cost option, then transmission should be built to access that resource. But unless beneficiaries pay the costs of transmission, then the cost effectiveness assessment cannot ensure the right resource choices based on total delivered costs. • Subsidizing long-distance transmission places local renewable (or other clean energy) resources, which may be more cost effective based on delivered cost -and which may have local economic development benefits - at a competitive disadvantage.

7. FERC Order 1000 • In June 2010, FERC issued a Notice of Proposed Rulemaking on Transmission Planning and Cost Allocation • FERC believes that current processes are insufficient for meeting the nation’s needs • Over 100 parties filed initial comments at FERC in September 2010 • Final Rule (Order 1000) issued in July 2011 • Over 60 groups have requested rehearing of the final rule

8. FERC Order 1000 (cont.) • Requires all utilities (or RTOs/ISOs) to file regional transmission plans and to develop inter-regional planning agreements with neighboring utilities • Regional transmission planning must take into account state and federal public policy requirements • Requires all utilities to file cost allocation methodologies and to develop cost allocation agreements with neighboring utilities)

9. FERC Order 1000 (cont.) • Costs must be allocated roughly commensurate with benefits, but the NOPR does not define benefits • Cost allocation and planning processes are left up to individual regions to develop and file with the Commission based on regional “consensus”, which is also not defined • FERC leaves it to regions to self-identify in compliance filings

10. CFTP Concerns – Order 1000 • The Commission should ensure that state legislative and regulatory prerogatives are not pre-empted in the regional planning process. Local needs should be satisfied based on state legislative and regulatory policy choices, not those made on their behalf during regional planning processes. • “Bottom-up” regional planning processes – where local needs are first determined by local utilities and their regulators - should be required

11. Coalition Concerns (cont.) • While “beneficiary pays” is the right principle, how “benefits” get defined truly matters • Only economic and reliability benefits that can reasonably be projected in planning and other modeling studies should be considered. Generalized “social benefits,” or speculative benefits are not rational or sufficient for cost allocation

12. Can Benefits be Measured? Utilities (and RTOs) are well-versed in conducting studies that examine the costs and benefits of proposed transmission projects – in fact, these are usually required to get regulatory approval and cost recovery for projects Utilities (and RTOs) regularly conduct transmission planning studies with respect to both the existing system and new projects to ensure reliability and examine economic impacts under various scenarios These same studies can be used to determine who benefits from new projects and what the nature of those benefits are (i.e., reliability vs. economics or public policy)

13. The Road Ahead FERC Order 1000’s lack of clarity provides the opportunity to get it right, or the opportunity to get it terribly wrong Need to keep the objectives of transmission planning and cost allocation in the forefront – ensure reliability and efficient markets for generation while providing electricity to end-use customers at the lowest reasonable cost

14. The Road Ahead (cont) • Getting it wrong could mean: • Local renewable generation is disadvantaged relative to remote resources because someone else is paying for transmission for the remote resources • Customers pay for transmission for which benefits are speculative at best • Locational marginal pricing does not provide the right price signals for buyers and sellers because congestion costs are subsidized • Stranded transmission investment could result as there is no incentive to ensure that transmission investment is truly needed

15. The Road Ahead (cont) • Getting it right primarily means – • Ensuring that planning is bottom-up based on the expressed needs of load-serving entities • Defining and measuring benefits correctly so that all users of the transmission system face the right price signals, generation is located in the right places, and all transmission users are treated equitably

16. The Road Ahead (cont) • Some recent decisions in specific cases give us concern regarding what the Commission means by Order 1000

17. The FERC SPP Order • SPP Cost Allocation Plan approved June 2010 • Highway/Byway approach with costs allocated according to voltage of the new transmission facilities • The costs of facilities operating at 300 kV and above will be allocated to all customers across the SPP region • Specific projects meeting this voltage threshold do not have to demonstrate broad benefits for costs to be socialized • Basis was finding that high voltage lines benefit all • Rehearing denied – Court appeals pending

18. The FERC MISO Order • MISO Proposal, covering 13 mid-western states, approved by FERC in December 2010 • Provides broad regional cost sharing for Multi-Value Projects (MVPs) as proposed by MISO with very broad characterization of what can be considered as benefits. • Over 20 requests for rehearing, including at least 4 from the MISO state commissions and also a request from the Organization of Midwest States (OMS) • Rehearing denied – Appeals filed in Seventh Circuit

19. The PJM Seventh Circuit Remand • In a case brought by the Illinois Commerce Commission, the Seventh Circuit remanded to FERC a PJM cost allocation order on the basis that the commission it did not adequately consider whether benefits would be allocated at least “roughly commensurate” to costs in PJM • FERC has conducted a paper hearing • Order on Remand was issued by FERC on March 30

20. Congress • In response to the FERC’s apparent direction, Senators Corker and Wyden and five co-sponsors introduced the Electric Transmission Consumer Protection Act (S. 400) in the Senate in February 2011 • Requires demonstration of “measurable benefits” before costs could be allocated to any customers • Several Senators have requested hearings on FERC transmission policy • House Energy and Commerce Committee holding hearing on transmission issues on October 13

21. Conclusions • Getting transmission cost allocation right is essential to ensuring that consumers can take advantage of the lowest cost clean energy alternatives • Masking price signals through the broad socialization of costs will simply lead to poor decisions regarding resource choices and place local resources (which may have many benefits) at a competitive disadvantage

22. Conclusions (cont.) • Transmission planning should continue to be based on a bottoms-up approach based on local and state needs • We support expanding the nation’s transmission systems and the use of both renewable and other clean energy resources, including demand-side management and energy efficiency resources, in the most cost-effective manner – and in the best interests of consumers

23. Further Information Coalition for Fair Transmission Policy www.fairtransmission.org info@fairtransmission.org