By Michael J. Gergen, Jared W. Johnson, and Shannon D. Torgerson

In an order issued December 16, 2010, the Federal Energy Regulatory Commission (FERC) conditionally accepted the California Independent System Operator Corporation’s (CAISO) proposed revisions to its Tariff (Docket No. ER10-1401) to implement a revised transmission planning process (RTPP) for the CAISO-controlled grid.  The CAISO had sought FERC approval of the RTPP proposal to facilitate the development of the electric transmission infrastructure necessary for California utilities to obtain 33% of their total energy supplies from renewable resources by December 31, 2020, as mandated under the California Air Resources Board (CARB) Renewable Electricity Standard and as proposed in legislation to modify the state’s Renewables Portfolio Standard (RPS).   

The RTPP introduces a three-phase approach to try to streamline identification of needed electric transmission projects for the CAISO-controlled grid, and clarifies the limited categories of transmission facilities in California that may be built and owned by non-incumbent transmission developers.

In Phase 1 of the RTPP the CAISO will develop a conceptual statewide plan.  In Phase 2, the CAISO will conduct technical studies, hold a request window for proposals for reliability projects, and issue a comprehensive transmission plan specifying all upgrades and additions needed on the CAISO-controlled grid, including those driven by reliability, economic, or policy goals (i.e., meeting a 33% RPS).  In Phase 3, the CAISO will hold an open solicitation process for proposals for policy-driven and economically-driven projects identified in the final comprehensive transmission plan developed in Phase 2. 

Significantly, in Phase 3, non-incumbent transmission developers will be allowed to vie with incumbent transmission owners in a competitive solicitation process to seek to build and own policy-driven and economically-driven upgrades and additions.  At the same time, however, incumbent transmission owners will retain exclusive rights of first refusal (ROFR) to build and own projects needed for reliability and major network upgrades identified as needed in studies performed as part of the generator interconnection process. 

A number of parties in the FERC proceeding protested the proposed provision of ROFRs to incumbent transmission owners for certain types of transmission facilities (especially those indentified through the generator interconnection process).  In the RTPP order, however, FERC accepted these proposed ROFRs in part because it found that they were expressly or impliedly part of the existing CAISO Tariff.  At the same time, FERC denied a separately docketed request by an independent, non-incumbent transmission developer that it either find that the existing Tariff did not provide ROFRs to incumbent transmission owners or that it decide that any such existing ROFRs should be eliminated.  While accepting these ROFRs as part of the RTPP, the order indicated that FERC would further address the appropriate scope of ROFRs for incumbent transmission owners in a final rule that it intends to issue in its proposed rulemaking on transmission planning and cost allocation (Docket No. RM10-23), in which FERC has proposed that all FERC-jurisdictional transmission providers amend their tariffs to eliminate ROFRs to build and own transmission facilities (for more information on FERC’s rulemaking in Docket No. RM10-23, see our Client Alert).  Interestingly, in discussing the RTPP order at the FERC open meeting on December 16 (see pages 47-49 of the transcript), some Commissioners acknowledged that the RTPP order declined to eliminate ROFRs for some types of projects and indicated that their consideration of ROFRs in the RTPP proceeding raised a number of practical issues that could impact the ultimate treatment of ROFRs in the final rule to be issued in Docket No. RM10-23. 

Several parties sought rehearing and clarification of the RTPP order, especially with respect to the nature and scope of ROFRs for reliability projects and network upgrades identified through the generator interconnection process, and, on February 16, 2011, FERC issued a procedural order stating it will address issues raised in the rehearing requests in a future order.