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FERC Seeks Comments on Transmission Rate Incentives Policy

On March 21, 2019, the Federal Energy Regulatory Commission (FERC) issued a notice of inquiry (NOI) seeking comments on possible improvements to its electric transmission rate incentives policies adopted pursuant to section 219 of the Federal Power Act (FPA), which FERC implemented in 2006 through the issuance of Order No. 679. FPA section 219 requires FERC to offer a variety of transmission rate incentives to incent transmission development to ensure electric reliability and reduce the cost of delivered power by reducing congestion.

The NOI seeks comments on FERC’s current policies and on how FERC should evaluate future requests for transmission incentives. FERC invites comments on the following topic areas:

  • Whether FERC should: (1) continue its current approach of requiring a nexus between the “risks and challenges” of a project and the incentives sought; (2) consider incentives based instead on specific measurable economic or reliability benefits (and if so, whether the evaluation should examine the expected benefits relative to the transmission project’s costs); (3) consider incentives based on project characteristics (e.g., projects in regions with persistent needs, interregional transmission projects, transmission projects that unlock constrained resources, projects employing specific technologies, etc.); or (4) adopt some other approach.
  • What expected project benefits or characteristics FERC should seek to incentivize, such as: (1) reliability benefits; (2) economic efficiency benefits; (3) projects offering relief in areas with chronic, long-term congestion or persistent reliability issues; (4) projects that facilitate flexible transmission system operation; (5) enhancement of physical or cyber-security; (6) resilience; (7) improvements to existing transmission facilities; (8) interregional transmission facilities; (9) projects designed to unlock location-constrained resources; (10) ownership by non-public utilities; (11) projects selected competitively in regional transmission plans under Order No. 1000 (for which FERC would provide a rebuttable presumption for construction work in progress, abandoned plant, and regulatory asset incentives); or (12) transmission projects located outside of FERC-approved regional transmission organizations or independent system operators.
  • Whether FERC should continue or revisit its policies regarding current incentives policies governing return on equity (ROE) “adders” for: (1) “transmission-only” companies; (2) participation in FERC-approved regional transmission organizations and independent system operators; and (3) advanced technologies.
  • Whether FERC should continue or revisit its policies regarding non-ROE incentives (and, whether certain incentives should be granted automatically or on a case-by-case basis) including: (1) construction work in progress; (2) recovery of one hundred percent of pre-commercial costs as an expense or regulatory asset; (3) hypothetical capital structure; (4) recovery of abandoned plant costs; and (5) accelerated depreciation.
  • Whether FERC should consider changes to the mechanics and implementation of incentives such as: (1) changing the duration of incentives if there are material modifications to a project or a significant change in expected benefits; (2) granting incentives automatically or continuing to grant incentives only on a case-by-case basis; (3) establishing a more formulaic approach to determining the appropriate level and combination of incentives; and (4) for ROE incentives, whether they should continue to be granted only if, when combined with the base ROE, they do not exceed the “zone of reasonableness.”
  • Whether FERC should establish metrics to evaluate the effectiveness of incentives.

Comments in response to the NOI are due ninety days after publication of the NOI in the Federal Register, with reply comments due thirty days after initial comments are due.