On May 19, 2011, the Federal Energy Regulatory Commission (“FERC” or the “Commission”) released the Notice of Inquiry (“NOI”), Promoting Transmission Investment Through Pricing Reform.In passing the Energy Policy Act of 2005, Congress added a new section 219 to the Federal Power Act (“FPA”).   That new section directed FERC to promulgate rules under the FPA that would help develop more transmission infrastructure.  The Commission subsequently issued Order No. 679 which provided several incentives for transmission development.   Some of the incentives applicants can apply for are adders to a base return on equity, the recovery of all prudently incurred costs necessary to comply with mandatory reliability standards, the inclusion of all construction work in progress in the rate base, hypothetical capital structure, accelerated depreciation for rate recovery, and recovery of prudently incurred pre-commercial operational costs.  

Since Order No. 679, FERC has received over seventy-five applications for transmission incentives, totaling over $50 billion in proposed transmission.  However, the Commission never adopted specific criteria for applicants to be eligible for incentive rate treatment, and the only threshold requirement is that an applicant must either ensure reliability or reduce congestion with their project.  Then the applicant must show a nexus between the incentive sought and the transmission project.

The Commission seeks comments on the scope and implementation of its incentives policy and would like many questions addressed, including:

  1. What have been the effects of FERC’s incentives policy with respect to the FPA goals, and are the policies actually promoting investments?  
  2. How does FERC create incentives for transmission barriers outside of the Commission’s jurisdiction?  
  3. How does FERC balance regulatory certainty with the current decline in investment, and are there other factors that the Commission should consider, such as metrics for balancing the competing interests in transmission investment?   
  4. Should specific rate incentives be tailored to address Congress’ goals under the FPA?   
  5. What other factors should FERC consider?  
  6. What impact has Order No. 679 had on consumer rates and service?  
  7.  How has the investments in transmission projects impacted the allocation of capital among other facilities?  
  8. How does FERC balance just and reasonable rates with the need for more transmission investment?

At the monthly Commission meeting, Commissioner Spitzer gave strong endorsement of the NOI as an opportunity for FERC to improve on implementation of the directives given to FERC by Congress.  Commissioner Moeller stressed the need for new investment, but also warned that FERC should not increase regulatory uncertainty by changing long-held investor expectations, and Commissioner Norris expressed his concern about increasing costs and the aging transmission infrastructure.  Commissioner Norris also stated the NOI will help him in determining if incentive adders for RTO membership and independent transmission company status are still necessary. 

 Comments are due sixty days after publication in the Federal Register.

 A link to the FERC Notice of Inquiry is available here

Commissioner Spitzer’s statement is available here.

Commissioner Moeller’s statement is available here.

Commissioner Norris’ statement is available here.