Will FERC’s transmission NOPR accelerate deployment of the much-needed transmission infrastructure?

Will FERC’s transmission NOPR accelerate deployment of the much-needed transmission infrastructure?

On April 21, 2022, FERC issued a Notice of Proposed Rulemaking (NOPR) to improve regional transmission planning and cost allocation. The approximately 500-page NOPR aims to ‘remedy deficiencies in the Commission’s existing regional transmission planning and cost allocation requirements to ensure that Commission-jurisdictional rates remain just and reasonable and not unduly discriminatory or preferential.’ The NOPR proposes a wide range of reforms related to regional transmission planning including:

  1. Requirements for carrying out long-term transmission expansion planning studies
  2. Types of benefits for which transmission projects are evaluated
  3. Inclusion of grid enhancing technologies in the planning studies
  4. Inclusion of network upgrades that are identified in the generator interconnections studies and meet a certain criteria to be included in the transmission planning studies
  5. Requirements for state needs to be considered within the transmission planning process
  6. Amendments to Order 1000’s competitive bidding provisions pertaining to federal right of first refusal (ROFR)

While the scope of the NOPR is very broad, we focus on select issues in this article.  

Long-term regional transmission planning process 

One of the most significant directives in the NOPR pertains to evaluating long-term system needs and considering a broad set of benefits for regional facilities. The proposed rule requires public utility transmission providers to:  

  • Conduct long-term regional transmission planning through evaluation of long-term scenarios incorporating changes in resource mix and demand, as well as high-impact, low-frequency events such as extreme weather events  
  • Evaluate regional transmission needs and benefits over a longer-term period of at least 20 years from the estimated in-service date of the proposed facilities 
  • Capture widespread benefits that large-scale transmission facilities spanning geographies or those enabling integration of the grid would provide. The Commission proposes an expanded list of benefits for evaluating regional facilities including avoided costs towards infrastructure to meet reliability needs, production cost savings, reduction in loss of load probability, planning reserve margin, energy losses and congestion, mitigation of system contingencies in extreme weather events, capacity benefits, access to lower cost generation, etc.   

The Commission highlighted MISO’s Multi Value Project (MVP) transmission planning studies as an exemplary process that led to a significant build-out and as seen backwards now may have led to $2.20 to $3.40 of benefit per dollar invested. In fact, we observe that the MISO—through its Long-Range Transmission Planning (LRTP) process, which is a few months away from proposing the $10 billion regional transmission portfolio to its board for approval—addresses several growing needs over the longer term. Consistent with the FERC directives, MISO has put together the business case for the LRTP upgrades to include potential reliability issues addressed, adjusted production cost savings, reduced risk of load shedding, avoided capital costs of additional local resources, reduced need for planning reserves, and avoided transmission investment. On a broader scale and through its Futures development process, MISO has put forth a range of scenarios that provide a bookend of sorts to identify the needs of a rapid transformation to its resource mix.    

Additional studies and research are needed to quantify the level, but it is reasonable to assume that the investment needs may have been significantly lower absent the wider array of benefits, longer study duration, and range of scenarios that have been considered in the LRTP. We find the Commission’s directions for a broader and expanded transmission planning (extension of the duration of the transmission expansion studies, considerations for additional scenarios) and inclusion of wider array of benefits to be a significant development that will likely result in higher transmission infrastructure needs and more transmission projects meeting the benefit/cost thresholds.      

Interconnection-related network upgrades 

The Commission expressed concerns about the absence of sufficiently forward-looking regional transmission planning and noted that a disproportionate share of transmission facilities are being developed through a generation interconnection process that, by design, was not aimed at providing system-wide solutions beyond the interconnection requests. The Commission is concerned this approach may be leading to incremental transmission expansion that is inefficient and cost ineffective. To address the issue, the NOPR proposes transmission providers to factor in certain high cost and recurring system upgrades identified through the interconnection process in their long-term planning. Specifically, the NOPR requires public utility transmission providers to evaluate for selection in the regional transmission plan, interconnection-related needs requiring network upgrades that are:   

  • Identified in at least two queue cycles in the preceding five years (starting from withdrawal of the first underlying interconnection request) 
  • 200kV and above voltage level and/or estimated cost of at least $30 million 
  • Not currently planned to be developed as the underlying interconnection request is withdrawn 
  • Not slated to be addressed in an executed generation interconnection agreement  

In our 2021 study for American Council on Renewable Energy (ACORE), we evaluated the economic benefits of a representative sample of 12 network upgrade projects in MISO and SPP, after screening approximately 600 upgrades. The shortlisted 12 network upgrades were in fact selected based on the criteria of repeat issues, high cost, and high voltage (345 kV and 500 kV levels) upgrades identified in MISO and SPP interconnection studies. We also observed that these transmission projects provided significant system-wide benefits. We find the NOPR’s proposal to include the recurring, high cost and voltage interconnection network upgrades into the transmission planning process to be a positive development. However, this applies to withdrawn interconnection requests and the NOPR does not address any changes relating to the cost allocation of participant-funded interconnection-related network upgrades for active generation interconnection requests. It is likely that many of the transmission upgrades that are currently identified through the generation interconnection process will merit inclusion in the regional transmission planning process and may meet the cost benefit thresholds, especially with the proposed changes to the transmission planning approach and pool of assessed benefits. This will reduce the grid expansion burdens that project developers currently carry. However, to keep renewable development at pace with the needs of the future and ensure just and reasonableness, Commission may need to reconsider the current cost allocation of the interconnection customer-funded upgrades. Our study showed that even when assessed using a business-as-usual scenario and limited to evaluation based on production cost savings only, benefits provided by 8 of the 12 assessed network upgrades exceeded the cost allocated to the load.   

Bringing back federal Right of First Refusal (ROFR)  

Additionally, the NOPR proposes to partially bring back the federal ROFR, which was fully eliminated through Order No. 1000. The Order eliminated incumbent transmission providers’ federal ROFR for new facilities selected in a regional transmission plan for purposes of cost allocation—the intent of this reform was to foster competition in transmission development by providing a fair opportunity for nonincumbents to participate in regional transmission development and provide cost-effective solutions for a wider set of system needs. However, the Commission notes that despite the provisions of Order 1000, there has been very limited investment in competitive transmission facilities that cross state boundaries. The NOPR also acknowledges that in removing the federal ROFR, the Commission may have failed to recognize that some of the most notable benefits from competitive transmission development processes such as greater innovation and potentially lower costs of transmission development could be achieved or at least reasonably approximated through other means. For developing regional transmission, the NOPR permits incumbent transmission providers to exercise federal ROFR under a qualifying joint ownership structure with nonincumbent transmission developers and other unaffiliated entities. While the Commission does not stipulate any specific structures for the joint partnership, it does emphasize that the partnership entails a meaningful level of ownership and investment for the unaffiliated entity. As noted by the Commission, these proposed reforms could lead to evolution of more joint partnerships for bulk transmission development—with risks and responsibilities such as siting, permitting, and financing spread across multiple parties.   

Plausible implications of the federal ROFR on regional planning- MISO as an example 

MISO thus far has limited success with competitive transmission development. Three regionally cost-shared projects were contemplated for competitive bidding. One of the three, the $67 million Duff Coleman 345 kV transmission line was awarded to Republic Transmission through competitive solicitations (the project was awarded to Republic Transmission in 2016 and was energized in mid-2020). The second project, $156 million Huntley-Wilmarth 345 kV project connecting southern Minnesota and northern Iowa was not put up for competitive bidding due to Minnesota’s right-of-first-refusal law and was awarded to the incumbent transmission owners, Xcel and ITC. The third project, $129 million Hartburg-Sabine 500 kV project’s competitive process was stalled by Texas’s ROFR law. The project identified as a market efficiency project by MISO was put up for competitive solicitations in 2018 and NextEra was selected as the preferred developer. However, the project went to gridlock after Texas legislature passed the ROFR law, granting the incumbent utility, Entergy, the first right to build the project. 

Exhibit 1: MISO’s Proposed LRTP Portfolio and State ROFR Status 

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Exhibit 1: MISO’s Proposed LRTP Portfolio and State ROFR Status
MISO’s proposed $10 billion transmission investment identified through its LRTP process includes a portfolio of about 13 high voltage transmission projects spanning nine states of which eight (Minnesota, Iowa, North Dakota, South Dakota, Wisconsin, Missouri, Indiana, and Michigan) have state ROFR law either enacted or proposed. Under the prevailing policies, the state ROFR laws most likely would grant the incumbent utilities the right to build these facilities without going through competitive bidding. However, in light of NOPR’s requirement, could a joint ownership of proposed facilities for exercising the federal right of first refusal incent partnerships that would ultimately lead to a competitive and timely deployment of the transmission infrastructure? Only time will tell.  

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Meet the authors
  1. Divya Boddu, Senior Energy Markets Consultant
  2. Himali Parmar, Vice President, Energy Advisory Services, Interconnection and Transmission

    Himali joined ICF in 2002 and is an expert in renewable integration, interconnection assessments, production cost modeling, forecasting transmission congestion and losses, and their effect on locational power prices and asset valuation. View bio