FERC's Transmission Incentives - What's the Criteria?

Let's look at the first set of questions in FERC's Transmission inquiry.  What criteria should FERC use to award incentives?  Which projects are worthy?  (Now, don't say "none," that's not how we play this game.)

Historically, FERC has awarded incentives to projects based on its evaluation of the project's "risks and challenges."  A project with a lot of risks and challenges that could prevent it from being built has been the project that gets the incentives.  Likely opposition?  Incentives!  Don't have state eminent domain authority?  Incentives!  Perceived financial risk?  Incentives!  Joint venture between two or more companies?  Incentives!  It seems like the more unlikely the transmission project is, the more FERC wants to award it for trying.  Are we rewarding risk and unsound business decisions for projects that are unlikely?

Does this comport with Sec. 219?

Q 1) Should the Commission retain the risks and challenges framework for evaluating incentive applications?
Q 2) Is providing incentives to address risks and challenges an appropriate proxy for the expected benefits brought by transmission and identified in section 219 (i.e., ensuring reliability or reducing the cost of delivered power by reducing transmission congestion)? If risks and challenges are not a useful proxy for benefits, is it an appropriate approach for other reasons?
Q 3) The Commission currently considers risks both in calculating a public utility’s base ROE and in assessing the availability and level of any ROE adder for risks and challenges. Is this approach still appropriate? If so, which risks are relevant to each inquiry, and, if they differ, how should the Commission distinguish between risks and challenges examined in each inquiry?

Is a risky project necessarily one that ensures reliability AND reduces the cost of delivered power by reducing transmission congestion?  (Note here that FERC has changed AND to "or".  Sec. 219 definitely says AND.)  Is an apple the same as an orange?  Of course not!  Sec. 219 provides the criteria for awarding incentives.  Does the project ensure reliability and reduce the cost of delivered power by reducing transmission congestion?  That's the basis for designing criteria for awarding incentives.  A project's risks and challenges are not relevant here.

Now the Commission asks if it should award incentives based on whether the project ensures reliability and reduces the cost of delivered power by reducing transmission congestion, but wants to use "project benefits" as the criteria.  Do the benefits meet Sec. 219's criteria?  Who's going to determine the benefits?  The project owner?  The RTO/ISO?  State regulators?  Consumers?  FERC?  What benefits should be considered?

Q 4) Would directly examining a transmission project’s expected benefits improve the Commission’s transmission incentives policy, consistent with the goals of section 219? Are there drawbacks to this approach, particularly relative to the current risks and challenges framework? Q 5) If the Commission adopts a benefits approach, should it lay out general principles and/or bright line criteria for evaluating the potential benefits of a proposed transmission project? If so, how should the Commission establish the principles or criteria?
Q 6) How would a direct evaluation of expected benefits, instead of using risks and challenges as a proxy, impact certainty for project developers?
Q 7) Should transmission projects with a demonstrated likelihood of benefits be awarded incentives automatically? How could the Commission administer such an approach?

Award incentives automatically?  Incentives cost electric consumers millions of dollars every year!  Transmission opponents know that project "benefits" cooked up by transmission owners and RTOs/ISOs are often overstated, based on extrapolated data that is unlikely to be accurate, and sometimes just plain old made up.  Shouldn't FERC take an independent look at the "benefit" data and test its accuracy before awarding incentives?

Q 8) If the Commission grants incentives based on expected benefits, should the level of the incentive vary based on the level of the expected benefits relative to transmission project costs? If so, how should the Commission determine how to vary incentives based on the size of benefits?

Q 9) Should incentives be conditioned upon meeting benefit-to-cost benchmarks, such as a benefit-cost ratio? If so, what benefit- to-cost ratios should be used?

Q 10) Should incentives be based only on benefit-to-cost estimates or should the Commission condition the incentives on evidence that that those benefit-to-cost estimates were realized?

Should you give your teenager the car keys and a bottle of scotch?  Or do teenagers need more supervision than that?  Of course they do!  And knowing what we know about trumped up "project benefits" it's probably a good idea to not only examine the veracity of benefit claims, but require the transmission owner to live up to them once a project is built.  What do you think should happen when a project clearly fails to meet its benefit projections?  Do we slap them on the hand and say, "Tsk, tsk, tsk?"  Or do we make them give the cost of the incentives back?

Q 11) If an incentive is conditioned upon a transmission developer meeting benefit-to-cost benchmarks, what types of benefits and costs should a transmission developer include, and the Commission consider to support requests for such incentives? Should there be measurement and verification, and if so, over what time period? If expected benefits do not accrue, should the incentive be revoked?

Oh, I see, we should just revoke the incentive for future use, not make the transmission owner disgorge its ill-gotten gold?  Considering the fact that some FERC proceedings take years and years to get to a conclusion, this is nothing but a money machine for transmission owners who know their project benefit claims are bogus.  How about some real consequences here?

Or should the Commission go out on a different limb and award incentives based on project characteristics, such as: transmission projects located in regions with persistent needs, interregional transmissions projects, or transmission projects that unlock constrained resources.  Do you see these reasons for awarding incentives anywhere in Sec. 219?  Me neither.

Q 12) How, if at all, would examining transmission projects’ characteristics in evaluations of transmission incentives applications improve the Commission’s transmission incentives policy and achieve the goals of section 219? Are there drawbacks to this approach, particularly relative to the current risks and challenges framework? Would this approach result in different outcomes, as compared to the current risks and challenges approach for granting incentives?
Q 13) If the Commission adopts an approach based on project characteristics, should it lay out general principles and/or bright line criteria for identifying or evaluating those characteristics?
Q 14) If so, how should applicable criteria be established, and, in cases where more than one criterion applies, how should they be evaluated in combination?
Q 15) How would an approach based on project characteristics impact certainty for project developers, particularly relative to the current risks and challenges framework?
Q 16) Should transmission projects with certain characteristics be awarded incentives automatically? How could the Commission administer such an approach?

The only relevant "characteristics" are those found in the statute, namely, does the project ensure reliability and reduce the cost of delivered power by reducing transmission congestion? Adding transmission for the purpose of connecting certain kinds of generation over long distances isn't a reliability issue.  It's a hand out to certain generators and an effort to force the use of certain generators that may not be economic.  Transmission for the purpose of favoring certain generators only increases costs for consumers.  Relieving "congestion" caused by the wish to overbuild generation in one region for the purposes of exporting it to another region shouldn't become the responsibility of consumers.

Think about these questions and the way in which they suggest FERC should overstep its authority under Sec. 219 in order to increase the profits and accessibility of certain kinds of generators.

More to come...