"Perhaps the most contentious electricity transmission financing issue is cost allocation for new interstate transmission lines--that is, deciding which electricity customers pay how much of the cost of building and operating a new transmission line that crosses several states. This report provides background and analysis of current transmission cost allocation policy and issues. For many years, the Federal Energy Regulatory Commission (FERC) declined to go beyond establishing general principles as set forth in its Order No. 890, which addressed 'undue discrimination and preference' in the providing of transmission services. Transmission cost allocation proposals made by transmission service providers were therefore reviewed by FERC to ensure compliance with the general principles outlined in Order No. 890 and the Federal Power Act (FPA). However, there were calls for FERC to provide a clearer framework for cost allocation. The decision of the Seventh Circuit in 'Illinois Commerce Commission v. FERC', to reject a cost allocation plan approved by FERC which would have permitted 'socialization' of the costs for some new transmission projects (i.e., allowing the costs to be spread widely among ratepayers in the PJM Interconnection, even those who do not substantially or clearly benefit from a project) encouraged FERC to seek more clarity with respect to cost allocation. Congress also entered the fray in the form of legislative proposals that would amend the Federal Power Act to include new transmission cost allocation guidelines that FERC would be required to follow. […] The Final Order comes as state renewable portfolio standards and the upcoming U.S. Environmental Protection Agency (EPA) regulations for coal power plants may drive demand for new transmission lines. The uncertainty regarding the implications for generation resources of upcoming EPA regulations has caused some utilities to delay decisions on building new generation, with plans to satisfy (at least interim) power needs from power markets until the regulatory clarity they seek is provided. This report analyzes recent developments concerning transmission cost allocation leading up to Order No. 1000, as well as the contents of the order and their potential impact on the transmission planning process in the future. FERC acknowledges that some key questions may only be answered in the compliance filing process."
CRS Report for Congress, R41193