The Federal Energy Regulatory Commission gathered a vast range of perspectives on how it should address competition among transmission developers through its proposed rule on long-range grid planning and cost allocation.

The proposed rule (RM21-17), issued in April, is the first comprehensive transmission rulemaking the agency has undertaken since it issued Order 1000 more than a decade ago.

Order 1000 sought to boost competition by requiring public utility transmission providers to remove federal "right-of-first-refusal," or ROFR, provisions from their FERC-jurisdictional tariffs for projects selected through a regional transmission planning process. ROFRs give incumbent transmission owners the first opportunity to build proposed power lines connecting to their systems.

In its April proposal, FERC acknowledged that ROFR exceptions in Order 1000 — such as those for local reliability projects — may have given incumbent utilities "perverse investment incentives" that actually discourage the development of sorely needed regional projects.

A number of states in the U.S. Midwest, as well as Texas, have also adopted laws in response to Order 1000 that give incumbent utilities within their borders the first crack at building projects selected through a regional transmission plan.

To address the issue, FERC's proposed rule would allow the exercise of ROFRs for regional transmission projects with the caveat that the incumbent transmission provider must establish joint ownership for those facilities. The agency specified that incumbent transmission providers with conditional ROFRs would not be allowed to partner with affiliated entities in such a way that unaffiliated entities "were offered less than a meaningful level of participation and investment" in the proposed project.

Comments on the proposed rule were due Aug. 17.

Mixed views on joint ownership model

The U.S. Department of Justice and the Federal Trade Commission filed joint comments opposing the proposed ROFR changes, arguing they are inconsistent with an executive order U.S. President Joe Biden issued in July 2021. The order directed federal agencies, including FERC, to adopt pro-competitive regulations and rescind rules that "create unnecessary barriers to entry that stifle competition."

As proposed, "the ROFR encourages the formation of a partnership when it may or may not be efficient and raises the risk that parties will act collusively, especially where two incumbent transmission owners form a joint venture that protects each other's territories from competition," the agencies said.

The Harvard Electricity Law Initiative similarly asserted that "by allowing incumbents to cartelize transmission development, the [proposed rule] would abandon the innovative potential of competitive transmission and doom customers to incumbents' suboptimal and unduly discriminatory planning."

The Organization of PJM States — a group of state utility regulators within the PJM Interconnection LLC's 13-state footprint — recommended that, at the very least, FERC should prohibit incumbent transmission owners from partnering on projects that receive a conditional ROFR.

A broad coalition of industrial electricity consumers separately noted that transmission costs in the PJM region alone increased by 152% from 2010 to 2020.

Meanwhile, the National Rural Electric Cooperative Association urged FERC to take a more targeted approach. FERC should require incumbent transmission owners seeking a conditional ROFR to offer joint ownership stakes in a project on a load-ratio basis to all unaffiliated load-serving entities, including co-ops and public power utilities, within the incumbent's service territory, the co-op association said.

The Transmission Access Policy Study Group, an association of transmission-dependent electric utilities in 35 states, also supported that idea. Co-ops and public power utilities are likely to use their net project earnings to offset consumer costs, the group said.

Transmission owners, consumer groups clash over cost savings, delays

A coalition of transmission owners operating in the 15-state Midcontinent ISO footprint, where eight states have enacted ROFR laws, urged FERC to rescind Order 1000's ROFR provisions entirely.

"Now is the time to remove arbitrary hurdles and avoid imposing new hurdles to timely development of the transmission infrastructure needed to accommodate a changing grid," the coalition said. As evidence, the coalition cited a 2019 report by the consulting firm Concentric Energy Advisors that found competitive solicitations run by regional grid operators can range from more than 130 days to nearly 1,500 days.

MISO itself said that it does not take a position on ROFR laws, but the grid operator noted that competitive solicitations can delay projects by more than a year and cost more than $1 million to implement. The grid operator singled out the 500-kV Hartburg-Sabine Junction project in eastern Texas as a particularly egregious case study.

After MISO selected the project through its transmission expansion plan, the Texas Legislature passed a state ROFR law that could preclude the chosen developer — NextEra Energy Inc. subsidiary NextEra Energy Transmission Midwest LLC — from building the line. A lawsuit challenging the Texas law still remains pending before the U.S. Court of Appeals for the 5th Circuit.

"It is clear that the existing framework to allow states to 'opt out' of competition by adopting a state ROFR creates significant uncertainty as some states may wait until a project subject to competition is located within its borders, or the project has been awarded to a nonincumbent, to adopt a ROFR," MISO said.

As a potential solution, MISO said FERC should consider revising Order 1000 to provide for a state "opt-in" provision.

However, a large group of transmission consumers, dubbed the Electricity Transmission Competition Coalition, asserted that FERC's proposed revisions to its ROFR rules are unlawful as written.

"Through the ROFR, the commission essentially declares, in other words, that the exercise of a federal ROFR is unjust and unreasonable, except for this one instance where it was formerly unjust and unreasonable but is now presumptively just and reasonable," the coalition said.

The coalition also cited a 2021 analysis of competition in onshore electricity transmission networks in the U.K. by the United Kingdom's Office of Gas and Electricity Markets that, in looking outside the U.K., found cost savings in a range of 22% to 42% in MISO projects selected through to competition.

The Clean Energy Buyers Association, whose membership includes technology giants Amazon.com Inc. and Google LLC, called the proposed ROFR reforms "a solid step in the wrong direction."

"Fundamentally, the re-establishment of a federal ROFR, even if conditional, likely fails to provide the necessary incentives for transmission developers to provide the most cost-effective solutions," the association said.

More clarity sought on implementation details

Public interest organizations urged FERC to provide further guidance on how a conditional ROFR would be implemented.

"The [proposed rule] does not provide any rules or guidance on whether the limited federal ROFR will apply where the incumbent utility seeks to build a project in a state or states that prefer competition for transmission facilities," said a group of organizations including the Natural Resource Defense Council's Sustainable FERC Project. "The commission should not impose a limited federal ROFR on states that prefer competition."

A coalition of transmission owners in the PJM region disagreed, arguing that FERC should "make adoption of any federal ROFR reforms mandatory nationally and not leave adoption to the various regions and their often divided and contentious stakeholders processes."

To avoid protracted litigation, the transmission owners urged FERC to provide more clarity on what constitutes "meaningful participation and investment" and a process for receiving preapproval for a conditional ROFR.

PJM asked FERC not to place it in the position of evaluating joint ownership models. Doing so would thrust PJM "into a quasi-regulatory role, which it is ill-fitted to handle," the grid operator said.

Advanced Energy Economy, a clean energy trade group, argued that FERC should consider the issues surrounding ROFR reform in a separate proceeding (AD22-8) dealing with cost containment. As part of that proceeding, FERC has scheduled a technical conference for Oct. 6.

The available evidence on how competition has played out in the wake of Order 1000 "does not necessarily lead to a single conclusion," Advanced Energy Economy said. "Before taking any action, the commission must undertake a more thorough study of the issue."

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