FERC Stays the Course, Denies Rehearing of Its Landmark Order No. 1000

October 26, 2012

On October 18, the Federal Energy Regulatory Commission (FERC) issued Order No. 1000-B, denying rehearing of its landmark Order No. 1000. Like other recent FERC actions, such as its Policy Statement on Allocation of Capacity on New Merchant Transmission Projects, issued in July, Order No. 1000 is aimed at reducing barriers to entry in the market for electric transmission, and thereby encouraging investment in transmission by independent transmission developers and other non-incumbents.

In Order 1000, FERC amended its regulatory structure for transmission planning and cost allocation with three major requirements:

(1) Each public utility transmission provider must participate in a regional transmission planning process that produces a transmission plan identifying the most cost-effective regional and inter-regional transmission projects, and provides for a method of cost-allocation for the selected projects meeting six specific principles. Independent transmission developers and other non-incumbents need not participate in this process, but it must be open to their participation.

(2) The planning process must provide for transmission expansion driven by public policy requirements, along with economic and reliability needs. State renewable portfolio standards and other public policies favoring the development of renewable energy are the largest public policy factor driving the need for new transmission.

(3) Most controversially, the federal "right of first refusal" ("ROFR") must be removed from FERC-approved transmission tariffs. The ROFR allows incumbent utilities to construct transmission projects within their own service territories, even if originally planned and permitted by another entity. FERC views this as a major barrier to entry for independent transmission developers.

In Order 1000-B, the Commission largely reaffirmed the existing order, making clarifications to address certain matters raised by petitioners. For example, one issue of particular concern to public power and other load-serving entities is the preference accorded to load-serving entities for long-term transmission rights under Section 217(b)(4) of the Federal Power Act. FERC clarified that it does not intend Order No. 1000 to alter the statutory preference for load-serving entities in the allocation of long-term transmission rights.

With FERC's work on the Order No. 1000 series now complete, the next step is litigation in the U.S. Courts of Appeal. It is a near-certainty that the ROFR issue will be litigated. In fact, the recent Order No. 1000 compliance documents filed by several of the Eastern ISOs (for example, ISO-New England and Midwest ISO) contain strident protests against the FERC's elimination of the ROFR. It is possible that several other issues could also be litigated.

Meanwhile, Bonneville Power Administration and the Pacific Northwest's other transmission providers in October filed Order No. 1000 compliance documents. These documents rely on the existing ColumbiaGrid planning process, with some modifications, to comply with Order No. 1000.

If you have any questions about Order No. 1000, the BPA compliance filing, or other matters related to electric transmission or FERC, please contact a member of GTH's Energy, Telecommunications and Utilities practice group. We have years of experience in FERC and BPA matters, the Northwest's energy industry, complex administrative matters, appellate litigation, and related fields.