Well, hey, just what we need during an economic crisis, right? Let's increase the electric bills consumers pay in order to enrich the utilities! I'm thinking that utilities are going to emerge from this clusterferc as better investments than ever. Where else could you get a double digit, guaranteed return on your investment during a recession? Maybe FERC's timing is just a bit off, but that's not going to stop the utilities from bellying up to the consumer money bar and gorging themselves comatose.
I note that in its recently issued Rulemaking FERC fails to provide any evidence that transmission incentives are needed. They just think they are.
I note that in its recently issued Rulemaking FERC fails to provide any evidence that transmission incentives are needed. They just think they are.
While transmission infrastructure development has remained generally robust at an aggregate level, the types of transmission projects that are needed, and the use of rate treatments to incent them, must evolve to reflect the changes in market fundamentals.
This is garbage, plain and simple. Where's the proof that transmission needs incentives to attract investors? There is none. However, FERC feels it is mandated to provide incentives by Sec. 219 of the FPA.
FPA section 219(a) requires that the Commission provide incentive-based rates for
electric transmission for the purpose of benefitting consumers by ensuring reliability and reducing the cost of delivered power by reducing transmission congestion. While we are encouraged by the investment in transmission infrastructure to date, our evaluation of the Commission’s incentives policy indicates that additional reform may be necessary to continue to satisfy our obligations under FPA section 219 in this new transmission planning landscape.
Well, hey there, we should all be happy that FERC can finally read the statute correctly (reliability AND reduced costs). Except they forgot how to read a couple sections down from this one.
So, FERC is going to "benefit" consumers with its new take on transmission incentives. It's going to toss out its current "risks and challenges" test and replace it with a consumer benefits test. This test is going to consist of comparing a proposed transmission project's cost/benefit ratio to a "national average" of transmission project cost/benefit ratios that is compiled by hunting through regional transmission organization transmission plans to harvest the ones with a cost/benefit ratio that fits into the scenario FERC (or maybe it's the transmission owner?) wants to create. Here's an example.
So, FERC is going to "benefit" consumers with its new take on transmission incentives. It's going to toss out its current "risks and challenges" test and replace it with a consumer benefits test. This test is going to consist of comparing a proposed transmission project's cost/benefit ratio to a "national average" of transmission project cost/benefit ratios that is compiled by hunting through regional transmission organization transmission plans to harvest the ones with a cost/benefit ratio that fits into the scenario FERC (or maybe it's the transmission owner?) wants to create. Here's an example.
First they will separate transmission into greater or less than $25M. Any project that hits the 75th percentile of the average benefit-cost ratio will receive a 50 bonus point ROE adder. Any project that hits the 90th percentile after the project is completed is entitled to add another 50 points. This whole thing is floating on top of the "average" benefit cost ratios that someone is going to create. It's not really clear who is going to create these, and how much bias is going to go into the creation. For example, the transmission projects selected for the PJM Region seem to use the ones with the highest ratios. While rebuilds associated with the Transource IEC project made it into the equation, the IEC itself was not used to create the data. With picking and choosing like this, benefit thresholds are as flimsy as wiping your hands on your pants to prevent infection.
What if a project is awarded that initial 50 points, but in the completed construction phase its ratio falls below the 75th percentile? Should its incentive be cancelled? Well, of course not. I don't see that proposed. It's all about handing out consumer cash for "estimated" benefits.
Next FERC proposes a "reliability benefit" incentive of an additional 50 points. Somehow FERC's reading of Sec. 219 to provide reliability AND reduced rates gets forgotten here. FERC proposes to award bonus points for "reliability" enhancements that go above and beyond NERC standards. NERC's job is to ensure the transmission system remains reliable. FERC's job is to regulate transmission rates. But suddenly FERC thinks it knows more about reliability than NERC does and is in a position to decide which NERC standards need to be gold-plated. Hogwash. It's just a handout. It doesn't benefit consumers.
The next part is just plain funny (and expensive). All rates must be just and reasonable. FERC has established a "zone of reasonableness" standard for transmission ROEs in order to ensure they are reasonable. The current incentives scheme caps incentive bonus points at the top of the zone of reasonableness. That is a utility's ROE, inclusive of incentive bonus points, cannot exceed the top of the zone. Now FERC wants to toss that out in favor of a flat 250 bonus point cap. So, even if a utility's base ROE is already near the top of the zone, it can still add 250 bonus points and exceed the zone of reasonableness. And still be "reasonable." Uh huh. Right. Transmission incentives don't have to be reasonable. They're something else entirely. Except Sec. 219 says they must be reasonable. FERC's approach here makes no sense.
Non-ROE incentives are proposed to remain basically the same, except the abandonment incentive (if awarded) will become retroactive to the date an RTO approved the transmission project. This closes the current gap between RTO project approval and Commission abandonment approval where the utility may have to *gasp* spend its own money! I thought incentives were supposed to benefit consumers? What happened to all that happy stuff about Sec. 219's purpose? There is no "benefit" to consumers who pay for RTO mistakes such as transmission ideas that are never actually built. There is no benefit here.
FERC tosses the transco incentive. Good enough.
However, FERC proposes to INCREASE the RTO membership incentive from 50 bonus points to 100 bonus points added to a utility's ROE. Ya know, based on the prior comment period that lead up to this rulemaking, I could have sworn that the case was made that the RTO membership incentive should be phased out. Looks like FERC just ignored all of those comments and did what it wanted to do from the beginning, which was to increase this incentive. Sec. 219 requires FERC to “provide for incentives to each transmitting utility or electric utility that joins a Transmission Organization.” It does not specify the form of the incentive... it could just as easily be a little, plastic participation trophy as ROE bonus points. There's also the issue about whether Congress meant to reward utilities who joined an RTO or continually reward them for remaining as members. This whole thing is a joke. What if states began a mass exodus from RTOs in order to avoid the consumer burden of this increased incentive? Who would pay it? Could utilities still charge consumers for their RTO membership if the consumers were no longer members? And how likely may a state be to approve new transmission projects for a company with a huge incentive cost? If they don't approve the transmission project to be built, the incentives mean absolutely nothing. (Hey, maybe that's why there was that risks and challenges test?) I'm thinking we may find the answers to these questions once FERC just goes merrily on its way of making new transmission incentives rules and ignoring all the comments it receives about better ideas.
FERC also proposes an incentive of 100 bonus points on the costs of "transmission technologies" as well as allowing the cost of operating them to be a regulatory asset for 5 years (to earn a return on the operating costs). Transmission technologies improve the operation of existing transmission assets without building entirely new transmission lines. We should be doing more of this and less building of new transmission on new rights of way. But what does FERC care? They're giving utilities full cost recovery + return for whatever transmission projects they want to try to build. It doesn't matter whether they ever get built or not.... and I'm thinking NOT. It's harder than ever to build new greenfield transmission. It might be a better use of consumer funds (ya know, "benefit" consumers) to improve the existing transmission system before building new lines.
So, that's the basics. It's an awful wolf dressed in "consumer benefits" clothing. It does nothing but increase costs for consumers who pay transmission rates. Just another giveaway to the utilities by the ones who are supposed to be protecting us from utility greed.
If you want to bang your head against the wall writing comments that nobody at FERC will read, please participate in this rulemaking. Otherwise, just stand back and open your wallet. Choices, choices.
What if a project is awarded that initial 50 points, but in the completed construction phase its ratio falls below the 75th percentile? Should its incentive be cancelled? Well, of course not. I don't see that proposed. It's all about handing out consumer cash for "estimated" benefits.
Next FERC proposes a "reliability benefit" incentive of an additional 50 points. Somehow FERC's reading of Sec. 219 to provide reliability AND reduced rates gets forgotten here. FERC proposes to award bonus points for "reliability" enhancements that go above and beyond NERC standards. NERC's job is to ensure the transmission system remains reliable. FERC's job is to regulate transmission rates. But suddenly FERC thinks it knows more about reliability than NERC does and is in a position to decide which NERC standards need to be gold-plated. Hogwash. It's just a handout. It doesn't benefit consumers.
The next part is just plain funny (and expensive). All rates must be just and reasonable. FERC has established a "zone of reasonableness" standard for transmission ROEs in order to ensure they are reasonable. The current incentives scheme caps incentive bonus points at the top of the zone of reasonableness. That is a utility's ROE, inclusive of incentive bonus points, cannot exceed the top of the zone. Now FERC wants to toss that out in favor of a flat 250 bonus point cap. So, even if a utility's base ROE is already near the top of the zone, it can still add 250 bonus points and exceed the zone of reasonableness. And still be "reasonable." Uh huh. Right. Transmission incentives don't have to be reasonable. They're something else entirely. Except Sec. 219 says they must be reasonable. FERC's approach here makes no sense.
Non-ROE incentives are proposed to remain basically the same, except the abandonment incentive (if awarded) will become retroactive to the date an RTO approved the transmission project. This closes the current gap between RTO project approval and Commission abandonment approval where the utility may have to *gasp* spend its own money! I thought incentives were supposed to benefit consumers? What happened to all that happy stuff about Sec. 219's purpose? There is no "benefit" to consumers who pay for RTO mistakes such as transmission ideas that are never actually built. There is no benefit here.
FERC tosses the transco incentive. Good enough.
However, FERC proposes to INCREASE the RTO membership incentive from 50 bonus points to 100 bonus points added to a utility's ROE. Ya know, based on the prior comment period that lead up to this rulemaking, I could have sworn that the case was made that the RTO membership incentive should be phased out. Looks like FERC just ignored all of those comments and did what it wanted to do from the beginning, which was to increase this incentive. Sec. 219 requires FERC to “provide for incentives to each transmitting utility or electric utility that joins a Transmission Organization.” It does not specify the form of the incentive... it could just as easily be a little, plastic participation trophy as ROE bonus points. There's also the issue about whether Congress meant to reward utilities who joined an RTO or continually reward them for remaining as members. This whole thing is a joke. What if states began a mass exodus from RTOs in order to avoid the consumer burden of this increased incentive? Who would pay it? Could utilities still charge consumers for their RTO membership if the consumers were no longer members? And how likely may a state be to approve new transmission projects for a company with a huge incentive cost? If they don't approve the transmission project to be built, the incentives mean absolutely nothing. (Hey, maybe that's why there was that risks and challenges test?) I'm thinking we may find the answers to these questions once FERC just goes merrily on its way of making new transmission incentives rules and ignoring all the comments it receives about better ideas.
FERC also proposes an incentive of 100 bonus points on the costs of "transmission technologies" as well as allowing the cost of operating them to be a regulatory asset for 5 years (to earn a return on the operating costs). Transmission technologies improve the operation of existing transmission assets without building entirely new transmission lines. We should be doing more of this and less building of new transmission on new rights of way. But what does FERC care? They're giving utilities full cost recovery + return for whatever transmission projects they want to try to build. It doesn't matter whether they ever get built or not.... and I'm thinking NOT. It's harder than ever to build new greenfield transmission. It might be a better use of consumer funds (ya know, "benefit" consumers) to improve the existing transmission system before building new lines.
So, that's the basics. It's an awful wolf dressed in "consumer benefits" clothing. It does nothing but increase costs for consumers who pay transmission rates. Just another giveaway to the utilities by the ones who are supposed to be protecting us from utility greed.
If you want to bang your head against the wall writing comments that nobody at FERC will read, please participate in this rulemaking. Otherwise, just stand back and open your wallet. Choices, choices.
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