On December 21, the Federal Energy Regulatory Commission ("FERC") made positive modifications to its final rule on transmission incentives; however, this "national rulemaking" does not alter the incentives approved by FERC, (which are up for rehearing), for the New England region (see more details below).
According to FERC Chairman Joe Kelleher, the changes to the final rule reflected the strength of the rehearing requests the Commission received, which "were well reasoned and persuasive." He cited, specifically, arguments submitted by the American Public Power Association, National Rural Electric Cooperative Association, and the National Association of Regulatory Utility Commissioners. Kelliher also said that changes in the composition of the Commission itself "brought a new perspective to our deliberations."
The rehearing order (No 679-A) issued on December 21 was approved by a unanimous vote, as was the original order, that was issued on July 30, 2006.
Important to public power was a change in the final rule to clarify the "nexus" test, requiring an applicant to demonstrate that the incentives sought are tailored to address the demonstrable risks and challenges of building new transmission facilities. This makes it clear an applicant must show a close link between incentives requested and the risks and challenges. FERC Commissioner Kelly stated that this change reflects the fact that these incentives are "borne directly by consumers, and .... clarifies that "return-on-equity (ROE) incentives should not be handed out lightly."
Kelliher also indicated that these changes will allow the Commission to better balance a transmission owner's total package of requested incentives. For example, if an applicant seeks a higher return to reflect the higher risk of a project, but also seeks recovery of construction work in progress, which reduces project risk, the return granted may be lower than requested.
These changes are helpful, but still provide an overly favorable incentive package for transmission owners. Of the proposals rejected on rehearing by FERC, was a request by public power to make clear that incentives will not be given to transmission owners or providers that refuse to seek or accept reasonable offers of participation by consumer-owned entities. FERC also rejected suggestions by public power to impose, upon all ISOs/RTOs, an obligation to provide service at the lowest reasonable cost to consumers.
NE Litigation on Transmission Incentives Moves on Separate Track
While the modifications made in Order No. 679-A on rehearing are positive, they will not reverse the transmission incentive policy advanced by New England transmission owners and approved by FERC on October 31, 2006. In the New England case, the Commission approved a 100-basis point incentive Return-On-Equity (ROE) "adder" for new transmission investment, which New England consumer-owned entities strongly opposed. New England public power entities have sought rehearing of the Commission's determination. While this case remains pending on a separate track, there is a link between it and the December decision; the New England decision should be consistent with the principals articulated and adopted more recently by the Commission. FERC's recent action should give NEPPA members a basis to encourage the Commission to treat New England consumers equal to (not worse) than their counterparts elsewhere in the country. NEPPA is working on bringing a delegation to DC to meet with the New England congressional delegation on this issue.
To review FERC Chairman Kelliher and Commissioner Kelly's statements and/or to read through the Order, please go to: Chairman Kelliher statement, Commissioner Kelly statement, Promoting Transmission Investment Through Pricing Reform.