Commissioner Christie’s Concurrence in E-1: Regional Transmission Planning and Cost Allocation NOPR

Commissioner Mark C. Christie Statement
April 21, 2022
Docket No. RM21-17-000

The broad purpose of this Commission’s oversight of transmission planning under the Federal Power Act (FPA) is to provide consumers with reliable power at just and reasonable rates.  I am voting for this Notice of Proposed Rulemaking (NOPR) because I believe it contains some very good proposals that could protect consumers from paying unjust and unreasonable rates for transmission service while also supporting the delivery of reliable power to those consumers.  I also believe it comports with our legal authority under the FPA.

First, the legal framework:  While the FPA gives this Commission authority over “the transmission of electric energy in interstate commerce,”[1] the Commission has no authority to encroach on matters regulated by the states.[2]  The planning, approval and siting of the generation resources necessary to meet the needs of customers in a state are under the regulatory authority of the states, not the Commission.[3]  States can prefer, mandate or subsidize specific types of generation resources, but the Commission cannot use its authority over transmission to pressure, steer or require regional planning entities to act as the Commission’s agents and do indirectly what the Commission cannot do directly.  The Commission is not a national integrated resource planner. Order No. 1000, to its credit, recognized this clear delineation between federal and state authority.[4]

Further, under the FPA our authority over transmission planning and cost allocation must ensure that wholesale transmission rates are not unjust and unreasonable.[5]  We also have the authority to promote the reliability of the bulk power grid.[6]  Those are consumer protection functions, not a license to promote the policy goals of any presidential administration or of any corporate or special-interest group that have not been enacted into law in the FPA or any other federal statute.

With that legal framework in mind, I am voting in favor of issuing this NOPR at this time and in this form because, on the whole, I find the current draft is consistent with our authority under the FPA and contains some important and constructive proposals that will serve the consumer protection goals of just and reasonable rates and reliability.

For example, and as described more fully below, this NOPR will formally put the states — for the first time — at the center of regional transmission planning and cost allocation decision-making for policy-driven projects in all regional transmission entities, if the states choose.[7]  As another valuable example, also described below, the NOPR will shift the risk of financing policy-driven projects from consumers back to developers, where it should be.

Let me also emphasize that this is a NOPR — the “P” stands for “Proposed” — it is not a final rule.  This is only another step in a long process.  I look forward to reviewing the comments reacting to it, which I suspect will come in significant quantities.  My vote on any final rule will, of course, be based on the text of that final rule.  I will not support any final rule that exceeds our FPA authority and/or threatens to cause unjust and unreasonable rates to consumers. 

When we issued the ANOPR last summer,[8] I said:

This ANOPR contains a number of good proposals, some potentially good proposals (depending on how they are fleshed out), and frankly, some proposals that are not—and may never be—ready for prime time, or could potentially cause massive increases in consumers’ bills for little to no commensurate benefit or inappropriately expand the role of federal regulation over local utility regulation.

Fortunately, this NOPR contains some very good proposals and leaves out the worst of the “not ready for prime time” ideas of the ANOPR.  While it still contains some features I would not choose,[9] on balance I am comfortable in voting for it in this form and putting it out for additional comment.  Here are some of the best features of this NOPR:

First, it leaves unchanged the planning criteria and cost allocation frameworks for Reliability and Economic projects.[10]  Reliability and Economic projects are the meat and potatoes of regional transmission planning.  These categories of projects are, by definition, integral to the primary duty of utilities to serve retail customers (load).  Reliability projects are essential to keep the lights on.  Economic projects are constructed to reduce quantifiable and definable congestion costs.  When these projects are needed, they should be expeditiously built.[11]  The NOPR wisely does not disturb existing criteria for timely planning, constructing and paying for these two categories of projects.

Second, the NOPR proposes to create a separate category of projects, which we can label “Long-Term Regional Transmission Facilities,”[12] or “LTRT projects.”  This new category replaces Order No. 1000’s “public policy projects.”[13]  As with these public policy projects, the new category of LTRT projects are mostly driven, in whole or in part, directly or indirectly, by public policies, such as projects that would accommodate a state’s legislated preferences for certain resources, or projects that could accommodate generation growth and retirements resulting from states’ implementation of their own integrated resource plans (IRP), or corporate goals recognized in state utility regulation. 

For this new category of LTRT projects, the NOPR proposes to require a planning process extending out 20 years, based on the premise that a 20-year projection of the expected generation mix, costs of generation, and/or load has validity.  Based on my experience as a state regulator with IRPs and computer models purporting to predict the future two or more decades down the road, I regard 20-year projections of this sort as, at best, occasionally interesting, but they certainly provide no basis whatsoever for saddling consumers with the costs of a billion-dollar transmission line.  However, while this NOPR does propose to require a 20-year planning process for LTRT projects, it does not propose to require that any individual LTRT project or group of projects must be approved for inclusion in any regional transmission expansion plan.  Indeed, there are no mandated LTRT projects in this NOPR, nor any planning-cycle quotas that regional entities must meet for including these types of projects in regional plans.

Even more importantly though, for these LTRT projects, the NOPR proposes to require the regional planning entities to consult with and seek the agreement of the relevant states to both the selection criteria for these projects and to the regional cost allocation arrangements.  State approval is especially important in a multi-state region, where different states have different policies.  The NOPR proposes to provide the maximum opportunity for creativity and flexibility to the states and regional entities in developing the process for designing and approving regional selection criteria and cost allocation arrangements.  States can agree to an ex ante formula for regional cost allocation of these types of projects — such as, for example, the “highway-byway” formula approved by the SPP Regional State Committee — or states can agree to a process for a project-by-project agreement on cost allocation among one or several states — such as, for example, the State Agreement Approach in PJM — or states may choose some combination of both.[14]  States in a multi-state RTO or ISO can even agree to defer the decision on cost allocation to the governing board of the RTO/ISO.[15]  The result is, while we are proposing to require regional planning entities to study and evaluate a broad, forward-looking array of information — including information addressing states’ individual energy policies and goals — any projects identified through this new process will not be built, or more importantly, paid for by consumers, until the states representing such consumers have agreed that such projects are indeed needed and wanted by those same consumers.

And let me emphasize two points:  First, as stated above, the Commission cannot impose a preference for certain types of generation nor require regional entities to plan transmission designed to prefer or facilitate one type of generation over another.  Second, regardless of any ultimate cost allocation arrangement agreed to in a regional entity, no individual state’s consumers can be forced to bear the costs of another state’s policy-driven project or element of a project against its consent.[16]  That would be inconsistent with the cost-allocation principles of Order No. 1000, which this NOPR explicitly proposes to preserve.[17]

States did not join RTOs[18] to pay for other states’ public policies or to pay for the public policy goals of huge multinational corporations or asset managers.[19] States joined to provide their retail consumers with the promised benefits of lower transmission costs and strengthened reliability through regional planning of core Reliability projects.  Some may say that state regulators should have no more special right to consent to planning criteria and cost allocation for these projects than other stakeholders in the RTO/ISO.  But states are not just “stakeholders.”  State regulators have the duty to act in the public interest and states alone are sovereign authorities with inherent police powers to regulate utilities through their designated state officers.  The FPA itself explicitly recognizes state authority.  So it is perfectly fitting for state regulators to have the important roles proposed in this NOPR, without preempting the regional planning entities from seeking additional input through their existing stakeholder processes.

The bottom line for me is this:  I believe that elevating the role in planning and cost allocation of state regulators — who are, as a group, deeply concerned about the monthly bills paid by consumers, of which transmission is a rapidly growing component — will make it more likely, not less, that necessary transmission can get built while ensuring that rates resulting from these types of policy-driven projects will not be unjust and unreasonable, which they clearly have the potential to be.

There is a third feature of this NOPR I also find very important.  For LTRT projects the NOPR proposes to end the Commission’s long practice of awarding, as an incentive, cost recovery for Construction Work in Process (CWIP); instead it will propose to require the booking of these pre-service costs as Allowance for Funds Used During Construction (AFUDC).[20]  CWIP is the award of cost recovery of construction costs during the pre-construction and construction phases to the developer.  CWIP is, of course, passed through as a cost to consumers, making consumers effectively an involuntary lender to the developer.  By contrast, AFUDC is booked during the pre-service phases, but cannot be recovered from customers until the project is completed and actually serving customers, i.e., “used and useful.”  The NOPR proposal is simply in keeping with traditional good utility ratemaking principles.  Booking these costs as AFUDC also recognizes the reality that just because an LTRT project is selected for a regional plan, it still has to obtain all state siting, certificate of public convenience and necessity  and other, including environmental, approvals, and survive what may be the subsequent litigation, before it is actually built.[21]  Consumers should be protected from paying CWIP costs during this potentially long period before a project actually enters service, if it ever does.  This NOPR proposal represents a major step forward in consumer protection and is a big reason I am voting for it. 

Finally, let me note again that this is a NOPR — a continuing work in progress with more work ahead.  For example, the section on planning of local projects[22] seeks to address a concern expressed by many commenters, that local projects may not be getting sufficiently vetted by regional planning entities.  In response, the NOPR essentially proposes PJM’s procedures for vetting and transparency of local projects, but I welcome additional comment from other regional entities as to whether there are more conducive measures for such vetting that may fit their own regions better.  Most importantly, on the broader issue of whether local projects are being properly scrutinized, as a former state regulator who sat on scores of local-project cases, I would point out that no local project is going to be built unless a state agency approves a certificate or its equivalent.  While the commenters note that procedures differ greatly from state to state, and some state utility commissions have more authority than others,[23] there is no question that states have within their inherent police powers the authority to regulate utilities and that includes the power to vet local projects both as to need and cost before approving them, just as states have the siting authority.  If states are not using these powers to vet fully such local projects, they should review their own state laws and procedures.  And if states believe they need more information from the RTOs/ISOs to make more informed decisions in their vetting processes, please comment on what additional information would be helpful for the RTOs and ISOs to provide. States should be a full partner in the process for vetting and approving local projects and I invite comment on how to strengthen state oversight of these projects to get the best deal for the consumer.

For these reasons cited above, I concur in the issuance of the NOPR.