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Statement: July 21, 2011
Docket No. RM10-23-000

Statement of Chairman Jon Wellinghoff on Transmission Planning and Cost Allocation

"Thank you to the entire team for your dedication, persistence, patience and creative thinking over many months to draft this rule for the Commission's consideration. I also want to thank our executive team, Michael Bardee, David Morenoff, and Maria Farinella from OGC, Jamie Simler and Mason Emnett from OEPI, and Michael McLaughlin and Anna Cochrane from OEMR, for their outstanding leadership on this important project. The Final Rule will profoundly affect the development of our nation's transmission system in coming decades.

And thank you to the almost 200 commenters who provided us with information on the challenges facing the electric industry and your advice on the best way these should be addressed.

I thank my colleagues for thought-provoking discussion of the issues presented here. Commissioners Spitzer and Moeller and I were relatively new to the Commission when we issued Order No. 890, upon which this Final Rule builds. However, as we monitored its implementation, we recognized that changes in the electric power industry over the ensuing four plus years necessitated additional reform to transmission planning and cost allocation to reflect the new demands placed on the nation's transmission system.

The key driver of the action we consider today in this Final Rule is reliable transmission service at just and reasonable rates.

NERC projects in its 2010 Long-Term Reliability Assessment that approximately 60 percent of all new resources expected to be added to the bulk power system by 2019 will be new wind and solar resources. Strengthening and expanding the system for the reliable integration of these resources will require significant investment in transmission. In the decade ending in 2019, NERC expects a nine percent increase in circuit miles of transmission will be added, with significantly higher percentage increases in new circuit miles in the WECC region, the southwest, New England and parts of the southeast. Of the total miles of additional bulk power transmission, 50 percent is needed for reliability. An additional 27 percent will be needed to integrate variable and renewable generation across North America. The remainder is for integration of hydro, fossil-fueled and nuclear generation and to reduce congestion, which can lower the delivered costs of power to consumers. As the Final Rule notes, the existing transmission system was not built to accommodate this shifting generation fleet. Another emerging factor is increasing interest by developers of transmission projects to focus on innovative solutions to transmission needs, independent of generation and retail distribution businesses.

With these new factors in play, it is critical that transmission planners seek the most efficient and cost-effective ways to meet the needs of their region. Transmission providers have in place the foundations for effective planning through their Commission-approved Order No. 890 planning processes. However, our monitoring of the implementation of these planning processes, conduct of technical conferences across the country and the numerous comments received in this rulemaking proceeding indicate that there remain gaps that must be filled if the transmission system is going to efficiently and cost-effectively address the trends and challenges that were just appearing on the horizon when Order No. 890 was issued. It is essential that the Commission's transmission planning and cost allocation requirements are adequate to support more efficient and cost-effective decisions moving forward. The enhancement to those procedures that we require today will promote efficient and cost-effective transmission planning and the fair allocation of costs for new transmission facilities. These changes will provide consumers with greater access to efficient, low cost electricity.

The staff has ably summarized the decision we are making in the final rule. I would like to briefly discuss four areas.

First, as I mentioned earlier, the mix of generation resources seeking to use the transmission system is changing. These changes result from the resource mixes chosen by the regions, which in part reflect public policy requirements such as renewable portfolio standards established by states. This Rule will facilitate identification of transmission needs driven by a region's public policy requirements, and consideration of efficient and cost-effective transmission solutions to meet those needs. I should point out that the enhanced transmission planning which we require today is not for one type of technology versus another, but is technology neutral.

Second, the Rule establishes principles for allocating the costs of new transmission facilities selected in the regional transmission plan for purposes of cost allocation. Among those principles are that costs must be allocated at least roughly commensurate with estimated benefits; those that receive no benefits should not be allocated costs; and no costs should be allocated outside a region unless the other region agrees.

Third, the Rule requires development of procedures in the planning process to reevaluate the regional transmission plan if delays in development of a transmission facility in the regional plan for cost allocation purposes may affect the incumbent transmission provider's ability to meet reliability needs or service obligations. This provision is designed to ensure that procedures are in place to address problems that may result from delay of transmission facilities before those delays affect the reliable operation of the system and reliable service. Such delays could range from those related to siting and permitting to decisions by incumbents providers or merchant developers to not proceed with a project.

Finally, we are not requiring a "one size fits all" approach to fulfilling the requirements we establish in the Final Rule, but instead expect each region to fashion its procedures and processes to fit its needs. Our staff will be available to answer questions and provide assistance. I look forward to reviewing those compliance filings.

For these reasons, I will vote to approve this Final Rule."