In a move that rankled some power industry participants, FERC voted Thursday to approve a supplemental Notice of Proposed Rulemaking that would scale back a transmission rate adder designed to encourage utilities to join RTOs.
The vote represented a sharp turnabout from last March, when the commission advanced a proposal to double the RTO adder to 100 basis points. (See FERC Proposes Increased Transmission Incentives.)
The draft supplemental NOPR approved Thursday on a 3-2 vote would keep the adder at 50 basis points while also reducing utilities’ eligibility period for collecting the incentive to three years (RM20-10).
The change would save ratepayers $350 million a year, FERC staff said during a presentation at the commission’s open meeting.
Staff also said the change was motivated by stakeholder comments in response to the March 2020 NOPR, which addresses transmission incentives more broadly. The proposal to boost the adder had drawn strong criticism from many corners, including the Union of Concerned Scientists, the Maryland Public Service Commission and the National Association of State Utility Consumer Advocates, which questioned the benefit to ratepayers of maintaining a payment to utilities that are longstanding RTO members. (See Tx Incentive NOPR Leaves Many with Sticker Shock.) The California Public Utilities Commission — a longtime opponent of perpetuating the incentive for in-state utilities already required by law to participate in CAISO — called the plan “atrocious.” (See CPUC Calls FERC Tx Incentive Plan ‘Atrocious.)
Those sentiments were shared to some degree by FERC Chairman Richard Glick.
“An incentive must incentivize something. If it does not do that, then it is a handout, not an incentive. Providing what is essentially a permanent payment for RTO membership is bad policy and inconsistent with the Federal Power Act,” Glick said in a statement.
In its presentation, FERC staff said the supplemental NOPR seeks to tailor the adder to the specific language contained in the FPA, which “only directs an incentive for entities that ‘join’ a Transmission Organization” rather than staying in one “in perpetuity.”
“Consistent with this approach, the draft supplemental NOPR also proposes to end all existing transmission organization incentives for transmitting utilities that have been members for three or more years,” staff said.
For utilities that have joined an RTO within the previous three years, the supplemental proposes that the adder would terminate “three years from the date it turned over operational control of its transmission facilities” to an RTO.
“The success of RTOs largely speaks for itself,” Glick said. “We should implement the specific directive Congress gave us: to reward the decision to join an RTO — instead of continuing to hand out money with no additional benefits.”
Commissioners Allison Clements and Mark Christie joined Glick in voting in favor of the NOPR, with Neil Chatterjee and James Danly voting against.
Chatterjee said the supplemental NOPR is “clearly inconsistent with the plain language” of the FPA.
He also warned that it was “illogical to make it more difficult for transmission companies to attract capital.”
“In a confounding yet predictable turn of events, when the entire industry and policymakers at the highest levels of government have repeatedly stressed the need to accelerate the build-out of the transmission system, this commission chooses to delay issuing a final rule and instead proposes to gut the RTO adder by only allowing prospective utility members to receive the incentive for three years,” Chatterjee said.
In response to Chatterjee’s criticism, Glick said “there’s nothing in the record” to suggest utilities need continued incentives to remain in RTOs.
The FERC chair instead pointed to other needed policy changes to spur transmission investment.
“I believe that the commission must make changes to our regulations and policies to improve the way electric transmission is planned, paid for and operated,” Glick said. “We also need to improve the process of interconnecting new generation to the transmission grid. Current interconnection queues are logjammed.”
Glick also pointed to the need to “break down the barriers” in state and regional interconnection processes. He stressed FERC’s desire to work with states through the National Association of Regulatory Utility Commissioners in that area and said he hoped to make a further announcement about that effort in the near future.
Glick also announced that FERC will hold a workshop on a “shared savings approach” to transmission investments, saying current regulations encourage utilities to pick the most expensive solutions to add to their rate base.
Western Impact
In a press briefing after the meeting, Glick said the narrower incentive should have little impact on efforts to develop an RTO in the West because stakeholders there “have their own reasons for joining” one.
“We don’t have authority to require utilities to join RTOs and so that’s obviously not a mechanism for us. We are trying to encourage that,” he said.
He pointed to ongoing discussions about resource adequacy in the West, which will be the topic of a June 23-24 FERC technical conference.
“I think the subject of RTO membership, and how that might help address some of the resource adequacy concerns in the region will certainly come up during the discussion,” he said.
“I don’t necessarily see how continuing to pay a utility in an RTO, is going to cause them to say I want to join an RTO. The concern in the West is not necessarily that utilities don’t want to join RTOs. Essentially, the concern that regulators have is with issues of governance and some of the longstanding history between California and the other states in the region, and that can act somewhat as an impediment. But we’ll do everything that we can do to encourage RTO participation.”
Reaction
All of the RTOs and ISOs contacted by RTO Insider said their staff needed more time to review the supplemental NOPR before providing comments.
“The role of RTOs and the need for consistent, stable membership — to the benefit of the customers within their respective footprints — will only be heightened in the next phase of investments into the transmission system,” said MISO spokesperson Brandon Morris.
“This proposal is significantly more negative than we expected,” ClearView Energy Partners said in a note to clients. “While the RTO adder has been the subject of controversy (and judicial appeal in the case of California’s publicly traded companies), we did not expect either immediate elimination or such a short period of eligibility.”
Larry Gasteiger, executive director of WIRES, called the proposed change “a profoundly disappointing step in the wrong direction.”
Gasteiger said he agreed with Glick’s comment Thursday that transmission is “the key component” to President Biden’s infrastructure plans but felt “FERC’s proposed action sends the wrong signal at a time when encouraging transmission owners to pursue more inter- and intraregional transmission planning is critical to getting strategic infrastructure built if we are to meet the administration’s clean energy goals.”
Vijay Satyal, senior energy market policy analyst for Western Resource Advocates, a avid proponent of the environmental benefits of a Western RTO, agreed with the notion of putting a time restriction on the RTO adder.
“I think that’s healthy because, otherwise, you have a perverse incentive. It’s like a nice cushion — you are in and keep getting that incentive on top of the other benefits you already get in an RTO/ISO,” Satyal told RTO Insider.
He thinks the “larger intent” of the NOPR and Glick’s comments is to “put the incentive where it’s supposed to be” — on drawing utilities into RTOs where they will realize those other benefits that keep them there.
Satyal declined to take a position on the appropriate size for the adder.
“I really would like to stay neutral on the issue of whether the adder should remain at 50 basis points or 100 because that really depends on a case-to-case basis of each transmission owner’s financial situation and what kind of capital they can bring to the table,” he said.
The CPUC did not respond to a request for comment in time for publication of this story.
