On January 31, 2023, the Federal Energy Regulatory Commission (“Commission” or “FERC”) granted Great River Energy’s (“GRE”) requested incentive rate treatment for GRE’s investment in the Iron Range Project and Big Stone Project (collectively, “Projects”). Notwithstanding FERC’s approval, Commissioner Christie’s separate concurrence highlighted persistent concerns over the Commission’s incentive rate treatment policy.

In 2006, FERC issued Order No. 679 to promote capital investment in electric transmission infrastructure via incentive-based rate treatment. To receive incentive treatment, an applicant must show (1) that its facilities ensure reliability or reduce the cost of delivered power by reducing transmission congestion, and (2) a nexus between the incentive sought and the investment being made. If so, an applicant may receive one or more incentive rates.

In late 2022, the Midcontinent Independent System Operator, Inc. (“MISO”) filed, on behalf of GRE, a request for incentive rate treatment for the Projects. The Projects are Multi-Value Projects (“MVPs”) comprising part of a portfolio of 18 Long Range Transmission Planning Tranche 1 projects included in the 2021 MISO Transmission Expansion Plan (“MTEP-21”) and have expected in-service dates of 2030. The Projects involve the construction of approximately 278 miles of new transmission lines in Minnesota and South Dakota. GRE expects to invest approximately $507.6 million and $27.5 million in the Iron Range Project and Big Stone Project, respectively. MISO previously and separately determined that (a) the Iron Range Project was needed to comply with North American Electric Reliability Corporation’s reliability standards, and (b) the Big Stone Project would relieve reliability issues and improve transmission connections needed for long distance movement of power.

In its January 31 order, the Commission found that the Projects will enhance reliability and/or reduce congestion, thus satisfying this prong of Order No. 679’s eligibility standard. As for the nexus prong, the Commission found that GRE’s requested Hypothetical Capital Structure Incentive and Construction While in Progress (“CWIP”) Incentive for the Iron Range Project, as well as the Abandoned Plant Incentive for the Projects, sufficiently addressed the risks and challenges associated with the Projects. The Commission therefore granted the total package of incentives sought.

Commissioner Christie concurred separately, noting that while the instant order is consistent with current policy, it suggests the need for FERC to revisit the many incentives available to transmission developers. Specifically, Commissioner Christie expressed concern that FERC’s determination of “substantial challenges and risks” when granting transmission incentives “has become nothing more than a check-the-box exercise” that forces ratepayers to pay for costs that may not ultimately become used and useful. According to Commissioner Christie, the CWIP Incentive effectively makes ratepayers the de facto “bank” for transmission developers, while also allowing developers to earn a profit on these “loans” fronted by ratepayers. Similarly, Commissioner Christie opined that the Abandoned Plant Incentive turns ratepayers into de facto “insurers,” since it allows developers to recover the costs for projects that fail to materialize. Unlike typical insurers, however, ratepayers do not receive premiums once the project is built. Hence, Commissioner Christie urged the Commission to reconsider these incentives during a time when customer power bills are rapidly increasing.

The referenced order, issued in Docket No. ER23-513, can be found here.