Back in October, the Congressional Research Service wrote a report summarizing FERC's Transmission Incentives NOI and analyzing the law and policy behind the transmission incentives themselves.
They make some interesting observations:
When FERC codified the EPAct language, they made a minor wording change that makes a huge difference, costs consumers billions, and perverts the original intent of the Act. The EPAct language states "...the Commission shall establish, by rule, incentive-based (including performance-based) rate treatments for the transmission of electric energy in interstate commerce by public utilities for the purpose of benefitting consumers by ensuring reliability and reducing the cost of delivered power by reducing transmission congestion." FERC's Order No. 679 changed this language to read, "... either ensure reliability or reduce the cost...". Right away, consumer rates take a jump because reliability projects that only increase costs are allowed under Order No. 679.
The history of the EPAct supposedly trickled down from this 2003 blackout task force report recommendation:
Clarify that prudent expenditures and investments for bulk system reliability (including investments in new technologies) will be recoverable through transmission rates.
Do you see anything in there that recommends incentives for the construction of a whole bunch of new transmission lines running parallel to existing, outdated, inefficient transmission lines? Me neither. It recommends that we improve transmission without specifying how.
But, Congress specified exactly how this would be accomplished in the EPAct, Sec. 219 (b) (1) & (3):
(b) CONTENTS.—The rule shall--
(1) promote reliable and economically efficient transmission and generation of electricity by promoting capital investment in the enlargement, improvement, maintenance, and operation of all facilities for the transmission of electric energy in interstate commerce, regardless of the ownership of the facilities;
(3) encourage deployment of transmission technologies and other measures to increase the capacity and efficiency of existing transmission facilities and improve the operation of the facilities; and
This is a point that StopPATH made in their NOI comments last year. FERC has interpreted and codified Sec. 219(b) as (1) applying to new facilities only; and (3) applying to existing facilities. This is also a perversion of interpretation on FERC's part. In the NOI, FERC expressed their puzzlement that no one had applied for incentives on existing facilities. Really? It's quite simple, Sherlock, improving existing facilities doesn't require as large a capital investment on the part of the transmission owner as building new facilities does. That capital investment is what earns outrageous ROE rates as high as 14.3%. The more they invest, the more equity profit they make. As well, FERC policy says that "routine" project and upgrades are not eligible for incentives. That wasn't the intent of Congress in the EPAct. In addition, FERC uses the price tag of a project as one of the factors in the nexus test. FERC's policy is geared toward enriching transmission owners to the detriment of consumers.
Building new transmission while allowing interconnected, existing infrastructure to continue to deteriorate, fail and cause blackouts is not what Congress had in mind. FERC's approach is like putting a piece of cardboard over a broken window and then cutting a hole and installing a new window right next to the broken one.
The CRS report opines that transmission investment over the next 20 years will be in the neighborhood of $298B. It also states that FERC may opt to do nothing about its incentives policy. Perhaps it's time for Congress to step back in and assert its authority to ensure its orders are being properly carried out before electricity costs completely bankrupt struggling consumers.
They make some interesting observations:
When FERC codified the EPAct language, they made a minor wording change that makes a huge difference, costs consumers billions, and perverts the original intent of the Act. The EPAct language states "...the Commission shall establish, by rule, incentive-based (including performance-based) rate treatments for the transmission of electric energy in interstate commerce by public utilities for the purpose of benefitting consumers by ensuring reliability and reducing the cost of delivered power by reducing transmission congestion." FERC's Order No. 679 changed this language to read, "... either ensure reliability or reduce the cost...". Right away, consumer rates take a jump because reliability projects that only increase costs are allowed under Order No. 679.
The history of the EPAct supposedly trickled down from this 2003 blackout task force report recommendation:
Clarify that prudent expenditures and investments for bulk system reliability (including investments in new technologies) will be recoverable through transmission rates.
Do you see anything in there that recommends incentives for the construction of a whole bunch of new transmission lines running parallel to existing, outdated, inefficient transmission lines? Me neither. It recommends that we improve transmission without specifying how.
But, Congress specified exactly how this would be accomplished in the EPAct, Sec. 219 (b) (1) & (3):
(b) CONTENTS.—The rule shall--
(1) promote reliable and economically efficient transmission and generation of electricity by promoting capital investment in the enlargement, improvement, maintenance, and operation of all facilities for the transmission of electric energy in interstate commerce, regardless of the ownership of the facilities;
(3) encourage deployment of transmission technologies and other measures to increase the capacity and efficiency of existing transmission facilities and improve the operation of the facilities; and
This is a point that StopPATH made in their NOI comments last year. FERC has interpreted and codified Sec. 219(b) as (1) applying to new facilities only; and (3) applying to existing facilities. This is also a perversion of interpretation on FERC's part. In the NOI, FERC expressed their puzzlement that no one had applied for incentives on existing facilities. Really? It's quite simple, Sherlock, improving existing facilities doesn't require as large a capital investment on the part of the transmission owner as building new facilities does. That capital investment is what earns outrageous ROE rates as high as 14.3%. The more they invest, the more equity profit they make. As well, FERC policy says that "routine" project and upgrades are not eligible for incentives. That wasn't the intent of Congress in the EPAct. In addition, FERC uses the price tag of a project as one of the factors in the nexus test. FERC's policy is geared toward enriching transmission owners to the detriment of consumers.
Building new transmission while allowing interconnected, existing infrastructure to continue to deteriorate, fail and cause blackouts is not what Congress had in mind. FERC's approach is like putting a piece of cardboard over a broken window and then cutting a hole and installing a new window right next to the broken one.
The CRS report opines that transmission investment over the next 20 years will be in the neighborhood of $298B. It also states that FERC may opt to do nothing about its incentives policy. Perhaps it's time for Congress to step back in and assert its authority to ensure its orders are being properly carried out before electricity costs completely bankrupt struggling consumers.
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