Q&A: FERC Chairman Jon Wellinghoff

The Federal Energy Regulatory Commission on July 21 issued Order No. 1000, a Final Rule that reforms the Commission’s electric transmission planning and cost allocation requirements for public utility transmission providers, FERC says.

With regard to cost allocation and regional and interregional transmission coordination, the Order has raised as many questions as it has attempted to answer.

FERC Chairman Jon Wellinghoff on Sept. 13 sat down with TransmissionHub to discuss the Order and its implications — from whether ERCOT will fall under FERC jurisdiction to States’ complaints that FERC is marginalizing their authority. An edited version of the conversation follows.

TransmissionHub: One recent development is the proposal to shift from the DOE to FERC the designation of transmission corridors, and as you know National Association of Regulatory Utility Commissioners has claimed this hasn’t been a transparent process.

Chairman Wellinghoff: We are, as you see, having an ongoing series of informal meetings with agencies including DOE and the Council on Environmental Quality discussing transmission issues. [It’s] interesting that NARUC says this hasn’t been transparent because we brought in many commissioners from the Eastern Interconnection and Western Interconnection, so you had Eastern and Western commissions, and at that time there was discussion of how we could take existing legislation that was already on the books and make it work effectively.

From there we had another meeting in June where there were a number of ideas put on the table and one of those was to do a delegation to FERC of the congestion study and corridor designation process. From that meeting in June we then in July focused on this one particular proposal and from there forward started doing a series of outreach meetings at the direction of the Secretaries and FERC.

NARUC was contacted early on, as soon as we knew we were going to do this outreach, but because of my schedule and Chuck Gray, their executive director’s schedule, it took a couple weeks to get to NARUC.

I think the process has been extremely transparent, we’ve been providing information to any entity or stakeholder group that’s been interested, and we knew we were going to do the outreach at the end of July, and DOE set a deadline for September 9 for their comments to be submitted.

When you said you were looking at the existing laws, what wasn’t working as effectively?

There were two court cases relative to that statutory provision. One was a Ninth Circuit court case that indicated the way that DOE designated the corridors needed to be revamped. That was part of the impetus for how we could do this corridor designation process in a way that would comport with the requirements of the Ninth Circuit, which really necessitated additional outreach in the states and additional detailed work on the environmental impacts of these corridors. That’s really the main impetus of trying to figure out how to restructure or work within the confines of the existing law.

DOE has actually effectively designated corridors at this point. Would you do anything differently from the way DOE goes about it?

We’d look at it on a more focused basis, which would be more efficient. The focus would be to particular proposed projects that could potentially be part of the regional planning processes under Order 1000 – that’s the linkage between that and Order 1000. And the corridor designation relative to specific projects that need to have the corridor.

That’s a bit of a departure from the way DOE did corridor designation, which is on a more widespread basis across larger areas that are not associated with specific projects.

What issues do you expect to arise from that?

I think you’ll be able to better do an environmental impact analysis and provide better stakeholder processes because stakeholders (states, environmental communities, landowners) will much better know where a particular line will go. Rather than a wide swath of a corridor that may or may not go, these will be project-associated NEPA statements, environmental impact statements, that will have specific alternative routes designated, much as we do for pipeline now, because FERC actually does do the siting of interstate natural gas pipelines.

There’s been a wide number of comments submitted to DOE, some positive, some negative. We’re waiting for the Secretary now to make a decision, because it’s totally within his discretion whether or not to delegate this authority to FERC from DOE, so at this time we’re not moving ahead with anything; we’re waiting for the Secretary to provide his decision based upon the comments he’s received.

Does he have a deadline to decide?

He doesn’t have a deadline. They’ve generally said they’d like to do it soon. I don’t know what exactly that means with respect to timing.

The next big thing on the agenda is FERC Order 1000. There’s been lots of requests for rehearing. One of the biggest concerns the industry seems to have is that there’s not enough time to make the interregional compliance filings.

That’ll be interesting to see. You have to remember, those deadlines don’t even start till October because our Order isn’t effective till 90 days after it was put into place. … We hope the work can be done within that period of time but if it’s not then they can certainly file for extensions, provide for good cause, showing evidence of why they weren’t able to comply.

A Southwest Power Pool representative, speaking at a conference, said he didn’t know what  regional borders SPP is to use. There seems to be a lot of lack of clarity about what is a region. Is Entergy a region, is the Tennessee Valley Authority a region?

I know that’s one area that there’s been a number of requests for rehearing. The direction we gave in the Order is that the regions can decide what a region is as long as it’s more than one jurisdictional utility. So RTOs have already formed themselves into regions, and it’s funny SPP saying that because SPP could be a region if they want to be and I’d assume they would be, because they’re an independent RTO.

TVA could potentially be a region as well because they’re made up of multiple utilities in TVA.

Entergy could not be a region because they’re just one utility, although there is Entergy Arkansas, Entergy Louisiana, Entergy New Orleans. So that will be an interesting question, but I would say off the top of my head that Entergy will not be a region because they are functioning under one holding company.

And beyond that we’ve given the regions a great deal of flexibility to decide and make those decisions.

Segueing into the cost allocation issue and how FERC has left it up to the regions to decide how to allocate, one of the concerns people have is it that there is too much flexibility.

We’ve given them a general guideline which is the guideline that comes out of the Seventh Circuit that says that benefits must be roughly commensurate with costs. Basically we’re saying there has to be some relationship between your benefits and your costs, when you’re allocating costs.

So that’s the outside. You cannot have costs allocated where there’s no benefits, and you have to have some evidence to show that the benefits are roughly commensurate with costs, that there’s some nexus. Beyond that, we’re allowing you to shape or form that cost allocation methodology and structure it in ways that will best meet your individual regional needs. I think that’s a reasonable thing to do.

And if they want more direction, then don’t do anything and FERC will give you some direction. We’ve explained to them that if they don’t come up with an allocation methodology that FERC will have to develop one for them.

Is that something you’re working on?

No, because we would develop one for them based up on the evidence and information that came from their stakeholder processes where they tried to develop their own. We’re not developing one that’s going to be a one-size-fits-all for anybody who comes in here that’s unsuccessful in developing their own; we’re going to take the evidence that comes out of that region and see how one should be developed.

We probably would throw them into a settlement conference if that didn’t succeed and again take the evidence that actually came out of those discussions and try to formally establish what at least would satisfy some plurality if not majority of the region; we’re not just going to impose something on them.

And the other thing we said is that one region can’t impose costs on another region without that other region’s acquiescence to those costs. So they just have to figure out if there are lines that go across regions, how they’re going to deal with interregional cost allocation issues.

Will FERC Order 1000 wrap up ERCOT into its jurisdiction?

That’s interesting actually. I hadn’t thought about that, to tell you quite frankly. It probably won’t in the sense that those neighbors are not strongly interconnected with ERCOT and that’s why ERCOT is ERCOT, because if they had a strong interconnection to the Eastern and Western Interconnects they would be FERC jurisdictional.

So most likely not, would be my simple answer there.

What about projects that propose to connect ERCOT with other interconnections?

There’s other projects in East and Southeast Texas to go out of ERCOT into an Entergy area as well and then there’s the Tres Amigas project proposed to go into Mexico and connect into their two interconnects from WECC to SPP to Texas. There’s multiple things, but all those projects I believe preserve this demarcation with some kind of a DC bus that reduces the level of interconnection and synchronization between ERCOT and the other interconnects.

Some have argued that there could be antitrust issues, that a transmission project developer whose project is not included in the regional plan can allege that the incumbent transmission owners are conspiring to exclude his project or are seeking to monopolize transmission.

They could apply to FERC, file a complaint with FERC and we would review it and see if there is a legitimate basis to their claim. That happens now.

What can regional planning authorities do to try to ensure that doesn’t happen

They have to have a fair, open, transparent stakeholder process. That’s required by Order 2000 and Order 890 and Order 1000. Although the orders relative to RTOs require that RTO processes allow for independent entities to participate in those processes and have a fair and open opportunity to impose things.

Do you expect regions to look to the Eastern Interconnection Planning Collaborative’s study for guidance?

I hope that those interconnect-wide planning efforts do help inform the regional planning efforts because otherwise those interconnect-wide planning efforts are going to be irrelevant. If they don’t have some place to actually be translated into actionable plans … then you kind of engaged in an exercise needlessly, so I’m certainly hoping that the regional entities will have access to and utilize for their information and planning purposes the results of those interconnect-wide planning activities.

What do you like about Order 1000? What do you think it accomplishes that Order 890 did not?

It’s interesting. I like about it the aspect that we are removing the right of first refusal (ROFR) from federal tariffs which I think will foster competition and allow for more capital to be brought to the transmission investment by having alternative developers come in and propose transmission projects. I think that’s a good aspect of the order that will be helpful to allowing more transmission to be proposed and built.

What if an independent transmission developer’s project for some reason falls through? 

We did consider that particular situation. … I’d have to go back and look at the rules, at the explicit provision of that, but I know we did consider that scenario when we considered the rule. The other part of the scenarios we did account for up front, the regional planning authority certainly has the responsibility and right to ensure that those developers that are proposing transmission systems are financially and tactically capable of carrying out the development and imposing certain conditions on those entities which would be reasonable.

[Note: Paragraph 344 states that an incumbent is not obligated to construct a nonincumbent’s project if the nonincumbent’s abandonment of a facility would result in a violation of a NERC reliability standard.

Paragraph 267 of the Order notes that an incumbent may be called upon to complete a project that either has been abandoned by another entity or has been selected in the regional transmission plan for purposes of cost allocation but has not been sponsored by another developer. These scenarios allow the incumbent to apply for abandoned plant cost recovery.

Paragraph 329 provides that incumbents may reevaluate the regional transmission plan if delays in the development of a transmission facility selected in a regional transmission plan for purposes of cost allocation require evaluation of alternative solutions, including those proposed by the incumbent transmission provider, to ensure the incumbent transmission provider can meet its reliability needs or service obligations.]

One frequent complaint is that states feel that FERC is marginalizing their role. What do you have to say to that?

The transmission corridor issue relative to states, we’re not changing any federal law right now. DOE has the right to designate those corridors under existing law; it would be just a transference to FERC. It would be no level of greater federal intrusion into states’ rights with that particular potential decision, which again hasn’t been made yet, and is total at the discretion of Secretary of Energy.

With respect to Order 1000 also I don’t see any additional federal intrusion into states’ rights; in fact, quite the contrary. The states or state commissions now have the ability to form these regions and to decide what level of participation state commissions can undertake in this regional planning process, so they can step up if they want to and be fully in charge of those regional processes, much like they are in SPP.

I mean they did step up in SPP and the states are very active there. Again, because we gave them all this discretion, it’s kind of ironic they’re saying, ‘Gee, we’re going to be pushed out.’ Well, no, you can push yourself back in if you want o, it’s completely within your discretion. That’s the message I’ve been delivering to state commissions. With Order 1000 now it’s time for states to step up.

About Rosy Lum 525 Articles
Rosy Lum, Analyst for TransmissionHub, has been covering the U.S. energy industry since 2007. She began her career in energy journalism at SNL Financial, for which she established a New York news desk. She covered topics ranging from energy finance and renewable policies and incentives, to master limited partnerships and ETFs. Thereafter, she honed her energy and utility focus at the Financial Times' dealReporter, where she covered and broke oil and gas and utility mergers and acquisitions.