THE FEDERAL ENERGY REGULATORY COMMISSION'S (FERC) NEW ORDER 890 IS A WELCOMED STEP FORWARD to improving the nation's electric transmission grid.

Since 1996, when FERC issued its pro-forma open-access transmission tariff (OATT) and the open-access same-time information system (OASIS) — Order Nos. 888 and 889, respectively — the nation's electric utility industry has changed dramatically. Much of the country's transmission facilities have been put under the control of regional transmission organizations (RTOs) and independent transmission organizations (ISOs). Organized wholesale electricity markets have flourished. Competition is strong in non-RTO regions as well. And the Energy Policy Act of 2005 (EPAct) has introduced many transmission-related reforms, including those to stimulate transmission facility construction and to establish mandatory reliability standards. Each of these factors heightens the timeliness of FERC's efforts to improve its open-access policies.

Regulatory policies that encourage new transmission construction could alleviate much of the concern about the potential for discrimination and preferential treatment in transmission service. Accordingly, FERC's policies should parallel the goal of EPAct to expand transmission infrastructure to encourage growth in wholesale market transactions.

Overall, the evolutionary approach FERC took to strengthen its pro-forma OATT is the correct one. Modifications — not wholesale structural changes — were needed to reinforce the OATT regulations, provide greater specificity and increase the transparency of the transmission planning process.

In particular, new Order 890 will provide greater clarity in two areas that have generated recurring disputes. One is the way that transmission providers calculate their available transfer capability (ATC), or the capacity they have left on their transmission lines to transmit power beyond their existing commitments. Another issue concerns the policy governing how transmission customers can renew, or roll over, their transmission contracts.

Regarding ATC, FERC's proposal to have the North American Electric Reliability Council (NERC) develop the standards for calculating ATC and total transfer capability (TTC) is a good one. NERC is uniquely suited to developing standards, because it represents the entire electric industry and it has the technical expertise.

Not all transmission providers should be required to use the same methodology for calculating their ATC/TTC. There are too many regional variables in the way systems operate to impose a single, standardized ATC/TTC methodology.

However, NERC should require that transmission providers use the same definitions and data inputs in whatever methodology they use to calculate their ATC/TTC. This will ensure that every transmission provider's ATC calculations are transparent and consistent.

Regarding the issue of rollover rights, FERC is correct to reform its policy to extend the minimum term of rollover rights from one year to five. And it is appropriate to require that those customers who want to exercise their rights do so one year prior to their service agreement's expiration, instead of the existing 60 days. Both of these changes will better enable transmission providers to plan and construct their systems to accommodate rollover customers.

Order 890 addresses another issue of great importance to the industry: transmission planning. FERC's goal of an open, coordinated and transparent transmission planning process can be best achieved by following a principled, nonprescriptive approach that allows for regional differences in planning processes. However, this coordinated planning process can work only if all industry participants have a reasonable opportunity to get involved. And once involved, they participate. States must also have a meaningful role in the transmission planning process, because they have statutory responsibilities such as siting, permitting and service adequacy. And state determinations regarding what is necessary to meet retail demand should not be second-guessed.

Having said this, it is critical for transmission providers to retain ultimate responsibility for the transmission planning process. Given that most transmission owners remain legally obligated for system reliability, they must make the final decisions concerning the development of the transmission system plan. This approach is consistent with state transmission and construction statutes, as well as a utility's obligation to serve under state law. It also acknowledges that transmission owners bring relevant property rights, skills and experience to the process.

The electric-utility industry remains dedicated to working with FERC today to ensure that its OATT reform measures in Order 890 carry this progress forward.

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James Fama is the executive director of energy delivery for the Edison Electric Institute.