FERC inquires into transmission incentives

U.S. energy regulators have opened an inquiry into possible improvements to a policy offering incentives for the development of certain electric transmission facilities. The proceeding could lead to changes in how the Federal Energy Regulatory Commission uses rates and other incentivizes to encourage the development of new transmission projects.

As part of the Energy Policy Act of 2005, Congress amended the Federal Power Act to add a new Section 219, directing the Federal Energy Regulatory Commission to use transmission incentives to help ensure reliability and reduce the cost of delivered power by reducing transmission congestion. The Commission implemented Section 219 in July 2006 by issuing Order No. 679. Through that order, the Commission 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 additional incentives to reduce risk, such as allowing the use of hypothetical capital structures and inclusion of 100 percent of prudently incurred costs of abandoned plant in rate base. Six years later, the Commission issued a policy statement offering interpretive guidance on its transmission incentive regulations.

On March 21, 2019, the Federal Energy Regulatory Commission issued a Notice of Inquiry seeking comments on possible improvements to its electric transmission incentives policy. The Commission cited the passage of nearly 13 years since its issuance of Order No. 679, and noted "a number of significant developments in how transmission is planned, developed, operated, and maintained" during that time period.

In light of this passage of time and these changes to transmission's role, the Commission said it opened the inquiry to ensure that it "appropriately encourages the development of the infrastructure needed to ensure grid reliability and reduce congestion to reduce the cost of power for consumers." Specifically, the Commission asked 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. The Commission also asked questions about other topics, including whether it should offer incentives based upon measurable criteria for economic efficiency and reliability benefits, provide incentives for improvements to existing transmission facilities, consider the costs and benefits of projects in awarding incentives, or review incentive applications on a case-specific or standardized basis, as well as how ROE incentives interact with the base ROE and other transmission incentives.

The Commission docketed its inquiry into transmission rate incentives as PL19-3-000, and set a 90-day deadline for initial public comments.