FERC transmission planning, cost allocation rule fails to ensure consumers receive lowest reasonable cost, may lead to discriminatory rates, override local decisions, says Coalition for Fair Transmission Policy

Lorena Madrigal

WASHINGTON , August 5, 2011 (press release) – The Federal Energy Regulatory Commission's final rule on transmission planning and cost allocation could force consumers to pay for unneeded transmission facilities, according to the Coalition for Fair Transmission Policy. The Coalition also said the rule could override locally-formulated state and utility resource decisions, undercutting consumers' environmental and economic concerns.

The Commission's final rule retains many of the flaws that marred earlier drafts, according to the Coalition. The utility group remains especially concerned that FERC's action on cost allocation fails to ensure local consumers will receive the lowest reasonable cost, which will make it difficult for FERC to find that rates are just and reasonable and not unduly discriminatory or preferential, as required by the Federal Power Act.

The final rule ignores multiple comments recommending that entities responsible for meeting state and federal public policy requirements and the state regulatory commissions overseeing them should decide how best to meet those mandates. Instead, the rule allows regions to develop planning processes as they see fit, possibly shifting costs among states or sub-regions.

The Coalition continues to believe transmission planning and siting are best decided by state and local authorities and utilities knowledgeable about local consumer needs and concerns. Any transmission plans developed by regional entities must be based on the expressed needs of local utilities that require new or expanded transmission service to meet reliability, economic or other public policy requirements.

The Coalition also noted that FERC's rule does not define "benefits," with regions expected to create their own definitions in compliance filings. Defining "benefits" broadly could ultimately undermine the "beneficiaries pay" principle that the FERC order explicitly endorsed. Also, this final rule does not explicitly require measurable savings that justify cost-allocation to customers. FERC's Midwest ISO MVP order last year socializing the costs of certain new transmission lines across 13 states demonstrates that costs can be unfairly allocated if there is no requirement that benefits be demonstrated.

The Coalition remains concerned that the Order could favor costly long-distance transmission of remote renewable resources over less expensive and greener local resources. Moreover, regions have received only limited guidance as to what definitions of benefits and beneficiaries will ultimately be accepted as just and reasonable by FERC under the Federal Power Act, until after compliance filings are decided.

Finally, FERC's approach permits the allocation of costs for new transmission within a region even to some consumers receiving no electricity from the project. Someone else will decide whether those consumers benefit from a project not otherwise needed for reliability purposes, even if the project was opposed by utilities being allocated costs and the suggested "benefits" are not really needed or desired by the supposed "beneficiaries". The potential problem is compounded by the lack of any limitations on how regions may define benefits.

The Coalition plans to continue its advocacy against placing unfair electricity cost burdens on consumers. The CFTP believes Congress should consider the energy policy implications of this important final rule as an essential part of the national energy policy debate.

The Coalition's eight members are CMS Energy Corporation, Consolidated Edison, Inc., DTE Energy Company, Progress Energy Inc., Public Service Enterprise Group, SCANA Corporation, Southern Company and United Illuminating Company. More than 28 percent of U.S. electric customers, representing 26 states, are served by utilities and companies that are either formal members of the Coalition or are on record supporting the group's goals. For more information, visit the Coalition's web site, www.fairtransmission.org. 

* All content is copyrighted by Industry Intelligence, or the original respective author or source. You may not recirculate, redistrubte or publish the analysis and presentation included in the service without Industry Intelligence's prior written consent. Please review our terms of use.