July 26, 2011 - how FERC Order No. 1000 affects the US electric grid

Tuesday, July 26, 2011

FERC Order No. 1000 reforms how public utilities plan and pay for transmission upgrades.  The 620-page order and final rule, issued on July 21, 2011, is designed to move our electric grid toward a more efficient and cost-effective system -- part of the smart grid movement.

Order No. 1000 (620-page PDF) covers both transmission planning and cost allocation, at both the regional and interregional level.  As FERC notes in the order, under current transmission law, utilities can engage in local transmission planning without having to consider whether regional solutions would be more efficient or cost effective.  Likewise, regional grid operators have been able to approve transmission projects without being required to consider whether an interregional solution -- like connecting New England's electric grid to that of a neighboring region -- would be more efficient or cost effective.  Once a transmission line is approved, the status quo allows grid operators fairly broad discretion in determining who should pay for the line -- all regional consumers, the subset of consumers benefited by the line, generators, or others.  As a result, consumers may be paying more for transmission than they should, while a lack of transmission expansion in certain areas may be stifling the development of renewable power projects.

To fix this problem -- or in the language spoken by FERC as framed by the Federal Power Act, to "ensure that the rates, terms and conditions of service provided by public utility transmission providers are just and reasonable and not unduly discriminatory or preferential" -- FERC issued Order No. 1000 with two primary objectives:

(1) ensure that transmission planning processes at the regional level consider and evaluate, on a non-discriminatory basis, possible transmission alternatives and produce a transmission plan that can meet transmission needs more efficiently and cost-effectively; and

(2) ensure that the costs of transmission solutions chosen to meet regional transmission needs are allocated fairly to those who receive benefits from them.

Expanding this reform of regional transmission development, Order No. 1000 places a similar framework around interregional transmission planning and cost allocation.

Order No. 1000 will become effective 60 days after the final rule is published in the Federal Register.

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