On April 15, 2021, FERC issued a Notice of Proposed Rulemaking (“NOPR”) to supplement the March 2020 NOPR regarding its electric transmission incentive policy under Federal Power Act (“FPA”) section 219 (see March 23, 2020 edition of the WER). While FERC’s March 2020 NOPR proposed to provide all utilities that turn over their wholesale transmission facilities to a Regional Transmission Organization (“RTO”) a fixed 100 basis-point increase in return on equity (“ROE”) (“RTO Participation Incentive”), the Supplemental NOPR proposes instead to codify its current practice of granting a 50 basis-point RTO Participation Incentive for utilities that join an RTO. In addition, FERC proposes that a utility will only be eligible for the incentive for the first three years after transferring operational control of its facilities to an RTO. The Supplemental NOPR also seeks comment on whether the RTO participation adder should be available solely to utilities that join an RTO voluntarily, and if so, how FERC should determine that the decision to join was voluntary. Commissioner Mark Christie issued a separate concurring statement, and Commissioners Neil Chatterjee and James Danly each issued separate dissenting statements.

FERC’s March 2020 NOPR proposed to continue to permit utilities that join an RTO to recover prudently incurred costs of joining the RTO in their jurisdictional rates, and also proposed to double the RTO Participation Incentive to 100 basis points. However, in the April 15 Supplemental NOPR, FERC explained that a 100 basis-point RTO Participation Incentive may not be necessary to incentivize RTO participation, and may not appropriately balance utility and ratepayer interests, given what FERC characterized as the substantial benefits to utilities of RTO participation.

The Supplemental NOPR proposes that the 50 basis-point ROE adder for RTO participation will only be available for the first three years after the transmitting utility transfers operational control of its facilities to the RTO. FERC further proposes that each utility that previously received an ROE incentive for joining and remaining in an RTO must, within 30 days of the effective date of the final rule, submit a compliance filing removing the incentive from its tariff, or if it joined an RTO in the last three years, adding language to its tariff to terminate its incentive three years from the date it turned over operational control.

FERC also proposes: that a utility will only be eligible for the incentive if it has not previously been a member of an RTO/ISO; to adopt the clarification proposed in the March 2020 NOPR that utilities must turn over operational control of their facilities to the RTO/ISO in order to be eligible for the incentive; and that utilities may not receive the incentive for transmission plant if the asset was already under the operational control of an RTO, whether as part of an affiliate or a separate owner.

Finally, the Supplemental NOPR seeks comment on:

  • Whether 50 basis points is the appropriate level for the RTO Participation Incentive.
  • Whether there are alternative, non-ROE incentives that are more appropriate.
  • Whether the incentive should be available only to utilities that join an RTO voluntarily, and if so, how it should apply that standard and how it should determine whether a transmitting utility’s decision to join an RTO is voluntary.
  • Whether and what restrictions should be imposed on incentive eligibility based on sales/affiliate corporate restructurings or for transmission plant constructed by new affiliates.
  • Whether new utility affiliates that build transmission, either within or outside the service territory of existing operating companies, should be eligible for the RTO Participation Incentive.

The Supplemental NOPR does not address the other proposals contained in the March 2020 NOPR.

Commissioner Christie’s concurring statement explained his position that “when transmission costs are already a significant and rising part of consumers’ retail bills, ROE adders needlessly burden consumers with substantial additional costs without demonstrable evidence that they actually incentivize the particular action they are aimed at incentivizing.” Referring to ROE adders as subsidies, Commissioner Christie stated that absent a clear declaration from Congress that a FERC-authorized incentive must take the form of an ROE adder, rewarding an ROE adder as a “reward” for joining an RTO/ISO may be inconsistent with FPA section 219’s concurrent mandate that rates be just and reasonable and not unduly discriminatory or preferential.

Commissioner Chatterjee’s dissent described the NOPR as “mischaracteriz[ing] the plain language of the FPA in order to strip utilities of the [RTO Participation] Incentive, even though the utility [RTO] membership has led to substantial consumer benefits and is vital to the energy transition and the development of much-needed transmission in the [RTO] regions.” Commissioner Chatterjee also stated that the Supplemental NOPR failed to reasonably implement FPA section 219, would slow the clean energy transition, and would stymie needed investments in transmission.

Commissioner Danly also issued a separate dissenting statement stating his opposition to the Supplemental NOPR and pointing out that it contradicts the text of FPA section 219 and fourteen years of precedent interpreting that unchanged statutory text. He also noted that utilities considering “RTO participation are sure to take note not only of the reduction in benefits attendant to RTO participation that the Commission proposes today, but also of the Commission’s willingness to take extraordinary steps to reduce those benefits.”

Comments are due 30 days after publication in the Federal Register; reply comments are due 15 days thereafter, or 45 days after the rule is published in the Federal Register.

The Supplemental NOPR is available here.