California and Midwest Orders Indicate FERC Disposed to Open Transmission to Competition and Spread the Costs of Transmission Broadly

In December 16 orders approving changes in how the California and Midwest Independent System Operators (ISO) plan transmission, FERC seems to preview how it intends to resolve two critically important and controversial questions that it put in play in a pending September 2010 notice of proposed rulemaking on transmission planning and cost allocation (Transmission Planning NOPR).  Those questions ask whether transmission investments should be competitively sourced and who should pay for transmission investments.

The approved California ISO changes aim to bring sufficient transmission on-line to support the state's progressive renewable portfolio standard "” California utilities to obtain 33% of their power from renewable sources by 2020. Notably the new planning process eliminates incumbent utilities' traditional rights-of-first-refusal (ROFR) and opens to competitive sourcing the construction of transmission lines that are driven by economics or public policy. Incumbents would retain their ROFR for projects within their territories designed to improve system reliability. In the Transmission Planning NOPR, FERC proposes to eliminate the incumbent ROFR entirely for all types of transmission projects, including those designed to address reliability concerns.

The approved Midwest ISO changes focused on who should pay the costs of transmission investments. FERC approved allocating to all Midwest ISO customers the cost of "multi-value" transmission projects that either: (1) seek to fulfill a state or federal "documented energy policy mandate"; (2) shows net benefits exceeding costs across multiple Midwest ISO pricing zones; or (3) economically benefit pricing zones and improve system reliability. While wind-power developers, not surprisingly, supported this allocation of costs, traditional generators, transmission customers, and state regulators objected that such a broad allocation of costs may risked subsidizing some customers at the expense of others. FERC's unanimous approval of the Midwest ISO's plan may preview the agency's proclivity to allocate the cost of transmission investments broadly, particularly those that support accessing renewable generation resources"”something FERC had proposed to address head-on in the Transmission Planning NOPR.