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FERC Proposes Changes to Electric Transmission Incentives Policy

On March 20, 2020, the Federal Energy Regulatory Commission (FERC) issued a notice of proposed rulemaking (NOPR) proposing to update FERC’s transmission incentives policy to focus on examination of two consumer benefits: ensuring reliability and reducing the cost of delivered power by reducing transmission congestion.

The NOPR includes eight specific proposals:

  1. Providing up to 100 basis points in adders to the authorized return on equity (ROE) of transmission projects that can demonstrate economic benefits based on meeting minimum benefit-to-cost ratios. FERC proposes to evaluate projects grouped in two different size classes: significant transmission facility expansions (those costing more than $25 million) and small system modifications (those costing $25 million or less). Transmission projects that rank in the 75th percentile within their size class with regard to benefit-to-cost ratios would be entitled to a 50 basis point ROE adder, while projects with benefit-to-cost ratios ranking in the 90th percentile within their size class would be entitled to a 100 basis point ROE adder.
  2. Providing an adder of up to 50 basis points to transmission projects that demonstrate significant and demonstrable reliability benefits beyond those required by the North American Electric Reliability Corporation, as measured by quantitative as well as qualitative analyses.
  3. Increasing the ROE adder for regional transmission organization (RTO) or independent system operator (ISO) membership from 50 to 100 basis points, and making the RTO/ISO adder available regardless of whether a transmission owner’s participation in the RTO/ISO is voluntary.
  4. Largely retaining existing non-ROE incentives, which are available to all transmission projects that demonstrate that they ensure reliability or reduce the cost of delivered power, but making discrete changes to the timeframe for which a transmission project may recover costs under FERC’s abandoned plant incentive.
  5. Replacing the current policy of limiting incentives to the base ROE zone of reasonableness with a new 250 basis point cap on total ROE incentives.
  6. Eliminating the ROE incentive and acquisition adjustment incentive currently available to stand-alone transmission companies.
  7. Providing a stand-alone, 100 basis point ROE incentive based on the costs of transmission technologies that enhance reliability, efficiency, and capacity, and improve the operation of new or existing transmission facilities. Such technologies would also be eligible for specialized regulatory asset treatment.
  8. Collecting information from transmission incentive applicants in a revised Form 730, Report of Transmission Investment Activity, on a project-by-project basis, regardless of size.

Comments on the NOPR are due July 1, 2020.