FERC Order 1920 Will Dramatically Impact Electric Transmission Planning
by Bob Shively, Enerdynamics President and Lead Facilitator
“Our nation needs a new foundation to get badly needed new transmission planned, paid for and built. With this new rule, that starts today.”
FERC Chairman Willie Phillips
On May 13, 2024, the Federal Energy Regulatory Commission (FERC) took a long-awaited step to address issues with transmission planning. Many industry participants contend that the U.S. transmission grid has woefully fallen behind what is needed to support growing demand, changing weather patterns, and the ongoing transition to low-carbon energy. According to a study by the Berkley Lab’s Energy Markets and Policy Department, 2,600 GW of proposed generation and storage capacity is waiting in transmission queues for authorization to
connect to the transmission system [1]. Over 95% of this capacity is for zero-carbon energy sources.
In 2023, the median wait time for connection to the grid for projects built was five years. Pressure is mounting for FERC to act so that transmission expansion can happen quicker. In response, FERC has put forth an order, according to FERC[ 2], “to ensure the transmission grid can meet the nation’s growing demand for reliable electricity.”
FERC’s news release states that the order adopts specific requirements for transmission providers to conduct long-term planning for regional transmission facilities and determine how to pay for them. The rule requires transmission operators to conduct and periodically update long-term transmission planning over a 20-year time horizon to anticipate future needs and address how to pay for new transmission. It also sets requirements for transparency, identifying opportunities to modify existing transmission lines to expand their capability and to enhance interregional transmission cooperation. The issue of the right of first refusal by incumbent transmission owners is addressed by creating the right for replacement facilities but not for new facilities. A more detailed list of key elements is available on the FERC Fact Sheet. Here are details on a couple of the key areas of the order:
Long-term planning consideration of benefits
The new long-term planning process must consider a broad set of benefits that expands the previous focus on reliability and direct cost savings. Benefits that planners are required to consider include:
- Reliability benefits: Improvements to system stability, reduced outages, and enhanced ability to meet reliability standards.
- Economic benefits: Reduced congestion costs, lower production costs, and increased market efficiency.
- Public policy benefits: Facilitating compliance with public policy requirements, such as renewable portfolio standards or emissions reduction goals.
- Operational benefits: Improved flexibility, enhanced grid resilience, and increased operational efficiency.
- Resource adequacy benefits: Ensuring sufficient generation capacity to meet peak demand and reserve requirements.
- Environmental benefits: Reduced emissions and environmental impacts associated with power generation and transmission.
- Load-serving benefits: Improved ability to meet customer demand and reduce the cost of delivered power.
- Competitive benefits: Increased access to diverse generation resources and enhanced market competition.
- Long-term planning benefits: Addressing future system needs and accommodating projected changes in generation mix and load patterns.
- Interregional benefits: Advantages gained from coordinating planning across different regions.
The order emphasizes that planners should consider both quantitative and qualitative benefits, and the evaluation process should be transparent and well-documented.
photo courtesy of FERC
Cost allocation principles
From a cost allocation perspective, the order introduced several important changes. Here's an overview of the key modifications:
- "Beneficiary pays" principle: The order reinforces that costs should be allocated to beneficiaries of transmission projects in a manner roughly commensurate with estimated benefits.
- Regional cost allocation methods: Transmission providers must develop regional cost allocation methods for new transmission facilities selected in regional transmission plans.
- Interregional cost allocation: The order mandates that neighboring planning regions develop a common method for allocating costs of new interregional transmission facilities.
- Multiple types of benefits: Cost allocation methods must consider all benefits and beneficiaries identified through the planning process, not just traditional reliability or economic benefits.
- Transparency: The process for determining benefits and identifying beneficiaries must be transparent to all stakeholders.
- Stakeholder involvement: There's an increased emphasis on stakeholder participation in developing cost allocation methodologies.
- Different allocation methods allowed: The order allows for different allocation methods for different types of transmission facilities (e.g., reliability, economic, public policy).
- No undue discrimination: Cost allocation methods cannot allocate costs involuntarily to non-beneficiaries.
- Approval process: FERC must approve the cost allocation methods developed by transmission providers and planning regions.
These changes aim to create a more equitable, transparent, and regionally coordinated approach to allocating the costs of new transmission infrastructure. The specifics of implementation can vary by region so long as they adhere to these principles.
Implementation and modifications to Order 1920
As with all key actions by regulatory authorities these days, Order 1920 is sure to face legal challenges. Issues already raised by interest groups include whether the order diminishes the states’ role in transmission planning, whether it favors renewable energy over other generation types, and whether it will increase electricity costs. These concerns and other issues that arise during implementation will likely result in modifications through follow-up orders. But, many industry participants believe that the order is an important step forward. It will be critical to watch how implementation plays out over the next few years.
