FERC Opens Ratepayer Wallets to Fund Transmission Subsidization

FERC yesterday adopted a final rule on transmission cost allocation clearly aimed at socializing greater amounts of transmission costs over a wider number of retail customers (RM10-23).

Although FERC's order requires that costs of transmission shall be allocated to those loads that benefit from those facilities, "in a manner that is at least roughly commensurate with estimated benefits," FERC refused to define the "benefits" of such transmission, while its prior precedent regarding the categorization of beneficiaries clearly exposes more loads to greater cost responsibility for projects solely designed to access remote generation.

Although FERC did not establish in the order that all high voltage facilities provide "benefits" to all loads within the same planning region (e.g. an RTO), it did not have to in order to ensure such an outcome, given that it has, in prior cost allocation decisions, established precedent that customers connected to an RTO derive reliability "benefits" from high voltage facilities, even if the customers do not use such facilities themselves.

While giving no explicit definition of beneficiaries, FERC's adopted order does mandate that the evaluation of beneficiaries consider, "the extent to which transmission facilities, individually or in the aggregate, provide for maintaining reliability and sharing reserves, production cost savings and congestion relief, and/or meeting Public Policy Requirements."

Furthermore, FERC prohibited transmission planning regions from using a rigorous cost/benefit analysis in deciding whether to approve projects, again opening ratepayers' checkbook for transmission development which benefits narrow interests. Specifically, FERC ruled that any cost/benefit analysis used, "may not include a ratio of benefits to costs that exceeds 1.25 unless the transmission planning justifies and the Commission approves a higher ratio."

Additionally, FERC refused reasonable requests that its cost allocation principles include provisions regarding cost control and containment.

As suggested above, the rule also requires transmission panning to include projects which meet "Public Policy Requirements," in addition to reliability or production cost savings, and makes such public policy projects eligible for cost socialization.

FERC did not define Public Policy Requirements, other than stating that they result from "state or federal laws or regulations."

FERC's rule also, with limited exception (such as for local transmission), eliminates the federal right of first refusal for franchised transmission owners.