Chairman Neil Chatterjee announced yesterday at the FERC Open Meeting that FERC will launch a review of electric transmission base ROE and incentives. He said that given the passage of time and the changing electric industry, that it is time for FERC to review existing policies to make sure that they are achieving the legislative mandate in the Energy Policy Act of 1995 which added Section 219 to the Federal Power Act). He did say that any changes made would have effect prospectively and not impact any existing cases. The timing and format of this review is under discussion. Commissioners LaFleur and Glick support this effort, as they have said recently that such a review is needed. Commissioner LaFleur suggested the review include how incentives work in the competitive transmission environment under Order 1000 as well as the RTO and transco incentives. Commissioner Glick stated FERC should focus on other actions that it should incent, such as new technologies that improve the existing transmission network. Given the recent FERC decision on a new approach to determining base ROEs, I expect the focus of this review to be on transmission incentives.
Section 219 requires that FERC establish incentive-based (including performance-based) rate treatments for transmission investments that benefit consumers by ensuring reliability and reducing the cost of delivered power by reducing transmission congestion. The incentives are to (1) promote reliable and economically efficient transmission and generation of electricity by promoting capital investment in the enlargement, improvement, maintenance, and operation of all transmission facilities; (2) provide a return on equity that attracts new investment in transmission facilities (including related transmission technologies); (3) encourage deployment of transmission technologies and other measures to increase the capacity and efficiency of existing transmission facilities and improve the operation of the facilities; and (4) allow recovery of all prudently incurred costs necessary to comply with mandatory reliability standards issued pursuant to section 215 and all prudently incurred costs related to transmission infrastructure development pursuant to section 216. Congress directed FERC to provide transmission owners an incentive joining an RTO.
Dr. Paul Dumais
CEO of Dumais Consulting with expertise in FERC regulatory matters, including transmission formula rates.