A worker at the base of a electricity transmission tower

FERC Seeks Ideas on How to Improve Transmission Incentives Policy

Move aimed at improving grid reliability and reducing congestion

The Federal Energy Regulatory Commission (FERC) is seeking comments on whether and how to improve its electric transmission incentives policy. The aim is to encourage the development of the infrastructure needed to ensure grid reliability and reduce congestion, which would translate into power cost savings for consumers.

The Energy Policy Act of 2005 amended the Federal Power Act (FPA) to add Section 219, which directs the FERC to use transmission incentives to help ensure reliability and reduce the cost of delivered power by reducing transmission congestion. In July 2006, the FERC implemented FPA Section 219 by issuing Order No. 679, which established a number of incentive rate treatments, including return on equity (ROE) adders to compensate for the risks and challenges faced by a specific project, for forming a transmission-only company, or for joining a regional transmission organization or independent system operator. Order No. 679 also established several risk-reducing incentives, such as allowing the use of hypothetical capital structures and inclusion of 100% of prudently incurred costs of abandoned plant in rate base. Since issuing Order No. 679, the FERC has acted on 109 incentive applications for more than US$80 billion in anticipated construction costs.

In 2012, the FERC issued a policy statement that provided additional guidance on how it would interpret certain aspects of the regulations adopted in Order No. 679.

The recent Notice of Inquiry (NOI) recognizes that nearly 13 years have passed since the issuance of Order No. 679 and there have been a number of significant developments in how transmission is planned, developed, operated, and maintained. In light of developments in the transmission sector and the experience gained, the FERC believes it is prudent to seek comment on whether and how to improve its current transmission incentives policy.

Specifically, the NOI examines whether incentives should continue to be granted based on a project’s risks and challenges or should be based on the benefits that a project provide. Examples of other topics addressed in the NOI include consideration of incentives based upon measurable criteria for economic efficiency and reliability benefits, providing incentives for improvements to existing transmission facilities, considering the costs and benefits of projects in awarding incentives, and determining whether to review incentive applications on a case-specific or standardized basis.

In addition, the NOI seeks comment on various ROE incentives, including how they interact with the base ROE and other transmission incentives. Finally, the NOI seeks input about possible metrics for evaluating the effectiveness of incentives.

Initial comments on the NOI are due 90 days after publication in the Federal Register; reply comments are due 30 days after that.

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