On October 18, 2012, the Federal Energy Regulatory Commission (“FERC” or “Commission”) issued Order No. 1000-B. Transmission Planning and Cost Allocation by Transmission Owning and Operating Public Utilities, Order No. 1000-B, 141 FERC ¶ 61,044 (2012). The Commission affirmed the determinations made in Order No. 1000-A, but granted clarifications on certain issues.

Regarding the relationship between Order No. 681 (Long-Term Firm Transmission Rights in Organized Electricity Markets, Order No. 681, 116 FERC ¶ 61,077 (2006)) and Order No. 1000, commenters expressed concern that the Commission suggested in Order No. 1000-A that the preference for load-serving entities embodied in Order No. 681 did not apply to new transmission facilities. The Commission clarified that nothing in either Order No. 1000 or Order No. 1000-A is intended to undermine or alter the guidelines the Commission instituted in Order No. 681. Order No. 1000-B at P 11.

The Commission rejected a request to require a Federal Power Act (“FPA”) Section 205 filing for project specific applications of a regional cost allocation methodology. In Order No. 1000-A, the Commission noted that public utility transmission providers, in consultation with stakeholders, may propose Open Access Transmission Tariff (“OATT”) revisions that require the submission of a Section 205 filing for cost allocation proposals in their Order No. 1000 compliance filings. Id. at P 12. However, the Commission rejected the notion that it was an error to not require the filing of specific applications of the cost allocation method. Id. at P 18. The Commission stated that stakeholders had the opportunity to participate in regional stakeholder meetings to advocate for a cost allocation method and to advocate that public utility transmission providers include a provision requiring a Section 205 filing for specific applications of the cost allocation method. As a result, absent the inclusion of a Section 205 filing requirement in a public utility’s Order No. 1000 compliance filing, interveners are left with FPA Section 206 rights either to address an incorrect application of the cost allocation method or to demonstrate that the approved cost allocation method is no longer just and reasonable. See Id. at P 22.

The Commission reaffirmed its legal authority to eliminate a federal right of first refusal to construct transmission facilities selected in a regional transmission plan for purposes of cost allocation over the objections of Oklahoma Gas and Electric Company. The Commission explained that a federal right of first refusal has “the potential to undermine the identification and evaluation of more efficient or cost-effective solutions to regional transmission needs, which in turn can result in rates for Commission-jurisdictional services that are unjust and unreasonable or otherwise result in undue discrimination by public utility transmission providers.” Id. at P 37. The Commission stated that it is reasonable to expect that expanding the universe of transmission developers offering potential solutions to regional needs can lead to the identification and evaluation of potential solutions that are more efficient or cost-effective. Id. at P 38.

Regarding agreements that have a federal right of first refusal and a Mobile-Sierra provision, United Gas Pipeline Co. v. Mobile Gas Corp., 350 U.S. 332 (1955); FPC v. Sierra Pac. Power Co., 350 U.S. 348 (1956), the Commission noted that it was not requiring public utility transmission providers to eliminate a federal right of first refusal before the Commission makes a determination regarding whether an agreement is protected by the Mobile-Sierra doctrine, and if so, whether the Commission has met the applicable standard of review. The Commission stated that it will first decide, based on a more complete record, including viewpoints of other interested parties, whether an agreement is protected by the Mobile-Sierra doctrine, and if so, whether the Commission has met the applicable standard of review such that it can require the modification of the particular agreement. Order No. 1000-B at P 40.

Commenters sought rehearing of the Commission’s determination in Order No. 1000-A that an incumbent transmission provider may not retain a federal right of first refusal for a new transmission project if (i) the project is selected in a regional transmission plan for purposes of cost allocation, and (ii) any of the costs of the facility are allocated outside of the public utility transmission provider’s retail distribution service territory or footprint. The Commission denied this request explaining that once a new transmission facility is selected in the regional transmission plan for purposes of cost allocation, it is no longer a local transmission facility exempt from the requirements of Order Nos. 1000 and 1000-A regarding the removal of federal rights of first refusal. Id. at P 52. Commissioner La Fleur dissented on this point indicating that the Commission acted prematurely in concluding that any amount of regional funding converts an otherwise local reliability project into a regional project for purposes of the right of first refusal. Commissioner La Fleur would have the Commission decide the issue when it acts on the compliance filings.

Commenters also sought rehearing of whether a project whose costs are allocated to a single zone with multiple transmission owners should be considered local and therefore whether the Commission should allow a public utility transmission provider to retain a federal right of first refusal in these circumstances. The Commission recognized that special consideration is needed when a small transmission provider is located within the footprint of another transmission provider and that there is a continuum of situations of multi-transmission provider zones. The Commission stated that intends to address these situations on compliance. Id. at P 54.

With regard to the selection of the developer for a transmission project after the regional planning entity has identified a needed project in its regional transmission plan, American Electric Power Co., Inc. (“AEP”) expressed concern that some regions are considering a process in which third parties (e.g., one or more states) select the developer (as compared to the regional planning body). AEP asserted that leaving the selection of a project developer to an entity other than the regional planning body can lead to sub-optimal results and that the decision as to which entity is best suited to build a given transmission project necessarily relies on the developer’s qualifications (as assessed by the transmission provider) and on the projected benefits (which will vary among developers). Id. at P 58. The Commission declined to clarify whether any particular approach to the selection of a transmission developer is a just and reasonable selection process in advance of the compliance filings. Id. at P 59.

On interregional transmission coordination, AEP also requested that the inclusion of an interregional project in a regional plan need not be subject to the same benefits tests that would be applied to a single-region project, and that a region may include an interregional project in its plan if the benefits to the region compare favorably to the share of the costs that would be borne by that region (as distinct from the total project costs). The Commission noted that Order No. 1000 did not specify whether or how a regional or interregional benefit-cost threshold should be applied when selecting a project in the regional transmission plan for purposes of cost allocation, or which costs should be included when calculating a benefit-cost threshold to use in this selection process. As with AEP’s request regarding the selection of the developer discussed above, the Commission declined to clarify in advance of the compliance filings how a benefit-cost threshold should be applied. Id. at P 64.