On 19 May 2011 the Federal Energy Regulatory Commission (FERC or Commission) issued a Notice of Inquiry (NOI) seeking comments on the scope and implementation of its policies to promote interstate electric transmission development through rate incentives. Comments are due 26 July 2011.

Background

The Energy Policy Act of 2005 added section 219 to the Federal Power Act, instructing FERC to establish incentive-based rate treatments for interstate electric transmission in order to promote investments in transmission infrastructure, ensure reliability, and reduce the cost of delivered power. In response, FERC issued Order No. 679 (20 July 2006), Order No. 679-A (December 2006), and a subsequent order on rehearing (April 2007).

Instead of adopting specific eligibility criteria for incentive rate treatment, the Commission in Order No. 679 required that a transmission facility seeking incentives under section 219 must demonstrate that (1) the transmission facility meets the section 219(a) statutory threshold (i.e., that the facility will ensure reliability or reduce the cost of delivered power) and (2) there is a nexus between the incentive sought and the investment being made. Order No. 679 established a rebuttable presumption that a transmission facility meets the statutory threshold if it either results from a regional planning process that evaluates such projects for reliability and/or congestion or if the project receives construction approval from a state commission or siting authority. Order No. 679, 116 FERC ¶ 61,057 at P 58 (2006). If the party cannot satisfy this rebuttable presumption, it must otherwise demonstrate that the project will ensure reliability or reduce the cost of delivered power.

After demonstrating that the facility will ensure reliability or reduce the cost of delivered power, the party must demonstrate that each incentive being sought "is rationally tailored to the risks and challenges faced in constructing new transmission" (called the nexus requirement). Id at 29.

In the five years since it issued Order No. 679, the Commission has applied this policy on a case-by-case basis and has authorized a variety of proposed transmission incentives.

Request for comments

FERC now seeks comments on the effectiveness of the transmission incentives that it has adopted under Order No. 679. In addition, FERC is seeking input on how it might adjust its incentives policies to better meet its statutory mandates while addressing the needs of the marketplace. The NOI includes over 70 individual questions that address, among many other topics, the following:

  • The effects of FERC's policies with respect to the goals that Congress set forth in section 219, including reducing congestion, ensuring reliability, and promoting investment in transmission infrastructure;
  • How to balance industry's need for regulatory certainty with a changing investment climate;
  • The possibility of tailoring specific rate incentives to specific goals set by Congress in section 219;
  • How to balance FERC's goal of promoting investment in transmission infrastructure with its goal of assuring just and reasonable rates;
  • The appropriateness of the rebuttable presumption for satisfying the section 219(a) statutory threshold;
  • Whether the "nexus" requirement should continue to focus on the risks and challenges of a project or whether it should focus on project characteristics themselves;
  • How FERC should evaluate the interrelationship of different incentives;
  • Whether FERC should maintain or reverse its policy that allows full recovery under an incentive-based rate treatment even if actual costs exceed cost estimates; and
  • The appropriateness of various individual incentives, including (among others) ROE adders, allowance to recover 100 per cent of prudently incurred costs for transmission facilities that are abandoned or canceled, and inclusion of Construction Work in Progress in rate base.

Related proceedings

The consideration of transmission development incentives comes at a moment when FERC is considering other key aspects of its authority over interstate transmission development. In particular, the Commission is presently considering industry comments on whether, and how, to adapt its "open-access" policies to meet the unique attributes of today's transmission projects (e.g., merchant transmission and participant-funded projects). In particular, recent proposals have presented ownership structures and priority rights schemes that differ substantially from the previous generation of transmission projects that were sponsored primarily by vertically-integrated public utilities. Separately, FERC is considering new policies for integrating variable energy resources (i.e., from renewable sources such as wind and solar) into the grid while maintaining electric reliability. Finally, the Commission is considering comments it received in response to a notice of proposed rulemaking in June 2010, in which it proposed rules to promote a regional approach to transmission planning and cost allocation.