By RTO Insider Staff

A group of grassroots organizations opposed to high-voltage transmission projects summed up the initial comments in FERC’s inquiry into its transmission incentive policies quite nicely (PL19-3).

“Those who profit from transmission incentives believe incentives should remain the same or be increased. Those who pay transmission incentives believe incentives should be reduced or phased out entirely. And those who believe transmission incentives are key to saving the planet champion new incentives at any cost,” said the group, which included organizations such as the Coalition for Rural Property Rights, the Eastern Missouri Landowners Alliance, Say NO to NECEC and STOP Transource Power Lines MD. “It is the unenviable position of this commission to referee these disparate interests to set policy that best serves its mission to ensure economically efficient, safe, reliable and secure energy services for consumers.”

Under an inquiry it opened in March, FERC is examining whether it should continue to grant transmission developers certain incentives, whether to increase or decrease them, and whether they should be based on projects’ risks and challenges or on the benefits they provide. Initial comments were submitted in late June. (See Tx Incentives NOI Brings Calls for Broader Reforms.)

Stakeholders largely reiterated their positions as they rebutted each other in their reply comments in the docket, submitted last week. Below, based on a review of more than two dozen filings, is a sample of what FERC heard.

“Not surprisingly, the initial comments contain conflicting recommendations for how the commission should proceed at this crossroads,” the California Public Utilities Commission said. “There is, however, general consensus that the historical decline in transmission investment that motivated Congress to enact Section 219 [of the Federal Power Act] in 2005 has been conclusively reversed.”

Defense of the Adders

The Edison Electric Institute said it “does not agree with commenters arguing that because Section 219 of the FPA and Order No. 679 have helped to promote increased transmission investment, the job is done and changes to the commission’s incentives policy to continue to encourage transmission development are not needed. Nor does EEI agree with those commenters who go even further and advocate that the commission rollback its incentives policy, because this would be counterproductive to meeting Congress’ objectives in implementing Section 219.”

The New Jersey Board of Public Utilities and the state’s Division of Rate Counsel filed joint comments saying transmission owners should not receive an incentive for RTO membership because “the benefits of RTO membership are a sufficient incentive,” citing economies of scale and efficiencies in the transmission planning process. “If the commission continues the RTO incentive adder, it should not be generically applied ‘regardless’ of why transmission owners participate in RTOs,” they wrote.

But others argued that FERC is required to provide an RTO/ISO participation adder under FPA Section 219. The commission approved the adder in Order 679 in 2006.

“Some commenters that argue for elimination of the current RTO participation incentive do not even acknowledge that the commission is statutorily obligated under FPA Section 219 to provide an RTO incentive,” a group of MISO transmission owners said. “Those that do acknowledge the obligation fail to provide a compelling reason to conclude that the current, modest 50-basis-point adder incentive is no longer reasonable, omit any detail regarding what ‘incentive’ the commission should offer instead, and do not provide any evidence to demonstrate the reasonableness of any such alternative incentive.”

“The initial comments opposing retention of the RTO participation adder do not offer compelling arguments,” American Electric Power said. “Some commenters suggest that the RTO participation adder should be eliminated, or should be phased out for current RTO members and available for a fixed period only for new RTO members. Such proposals are in tension with the legislative text and the commission’s interpretation of that text.”

Others defended the participation adder on its own merits.

“The role of RTOs and the need for consistent, stable membership of transmission owners will only be heightened in the next phase of investments into the transmission system,” MISO said. “Incremental changes, even changes that may occur in separate proceedings over the course of several years, have the potential to erode the foundation upon which RTOs were built.”

MISO insisted the participation adder is necessary to expand voluntary RTO membership, saying that membership has “stalled,” far from the “near universal” participation FERC envisioned when it issued Order 2000 in 1999.

Eversource Energy said that the RTO participation subjects TOs to risks, as they turn over their operational control and transmission planning functions, and they also face coordination issues, such as outage scheduling.

“Transmission-owning RTO/ISO members assume the considerable risks associated with RTO/ISO participation for the benefit of their customers, as many of the benefits of RTO/ISO participation accrue to customers and not to the utilities themselves,” agreed Exelon.

In joint comments, Pacific Gas and Electric and San Diego Gas & Electric urged FERC to maintain both the participation adder and the abandonment incentive, which permits recovery of 100% of prudently incurred costs for projects canceled because of factors that are beyond TOs’ control. Any reduction, even in certain circumstances, could act as a disincentive to new investment, the utilities said.

Competition

Eversource also said the commission should dismiss the suggestion to condition the application of the RTO participation incentive on the relevant RTO or ISO having at least 33% of the transmission investment in its region originating from competitive solicitations. “There is nothing in the language of Section 219c to suggest that the incentive for joining a regional transmission organization should be conditioned upon the level or percentage of transmission investments subject to the competitive solicitation process. Indeed, in the [Notice of Inquiry], the commission itself pointed out that Order No. 1000 is not related to ‘the commission’s obligations under Section 219.’”

Both PJM’s Independent Market Monitor and LS Power said the existing structure provides enough incentive to attract infrastructure investment and, if anything, should subject more projects to competitive bidding.

LS Power asked FERC to withhold incentives from upgrades or new builds that aren’t “independently reviewed.”

“FERC does not need to change its current incentives policies in order for ratepayers to obtain the benefits of competition, but FERC can significantly expand these benefits by taking steps to expand the number of projects selected through competitive transmission solicitations,” the company said.

“Rules permitting competition to provide financing for PJM and other RTO transmission expansion projects could reduce the cost of capital for transmission projects and significantly reduce total costs to customers,” the Monitor said. “Rules that allow incumbent owners to exclude, limit or condition the development of new or replacement transmission projects create barriers to competitive investment.”

Advanced Tech

The Grid Advancement Coalition — 18 companies, environmental organizations and trade groups, including ITC Holdings, the American Wind Energy Association and the Natural Resources Defense Council — called for policies to encourage relatively low-cost investments that could make existing transmission more efficient, such as dynamic line rating and power flow controls. “This action is needed to comply with FPA Section 219b(3), adopted in the Energy Policy Act of 2005, because the commission never introduced specific regulations implementing that section in Order 679 or elsewhere,” it said.

It also asked the commission “act separately to promote a more expansive transmission planning regime that fully considers the benefits of grid expansion and integration across seams.”

“There are many benefits of transmission investments that are unrecognized and uncredited in the commission’s current regulatory scheme, making ‘free riders’ of many consumers while others are faced with locally concentrated costs, leading them to oppose transmission development they should favor,” the group wrote. “The commission should reset that scheme by focusing its evaluation of transmission incentives on the consumer benefits that proposed transmission investments supported by incentives will deliver, rather than on how ‘risky’ or ‘challenging’ a transmission project may be to develop.”

Potomac Economics, which provides market monitoring services for MISO, NYISO and ISO-NE, had also proposed an incentive to encourage the use of dynamic line ratings as a way of increasing existing lines’ capacity. The MISO TOs, however, came out against that idea.

“Introducing economics into transmission facility rating decisions could work at cross-purposes with actions of utility operators to objectively perform their reliability functions,” they said. [On Sept. 10-11, FERC will hold a technical conference on transmission line ratings, with a focus on dynamic and ambient-adjusted ratings (AD19-15)].

The Working for Advanced Transmission Technologies (WATT) Coalition proposed a new incentive for small projects using advanced technologies that produce quantified congestion benefits, an idea supported by AEP.

No New Incentives

But other stakeholders were vehemently opposed to new incentives, increases to existing adders or making qualification for them easier.

“The commission’s incentives policies are already quite flexible and allow transmission owners the ability to seek a range of incentives … for various purposes,” the National Rural Electric Cooperative Association said. “It would be inappropriate, however, to enshrine the various perks that transmission owners want into the commission’s incentive regulations.”

NRECA called out WATT’s proposal specifically, saying such projects “may hold promise of such consumer benefits, but the commission should not approve a new incentive rate treatment for them in this proceeding.” It cited FERC’s 2012 incentives policy statement, where it explained that “having distinct standards apply to advanced technologies contributes to confusion.”

“Sticking with this case-by-case process for these kinds of projects is the best way to ensure that regional planning requirements can be established; that the relevant costs and benefits can be identified and defined; and that the appropriate shared-savings rate treatment can be evaluated,” NRECA said.

FERC in Order 679 established a requirement that each applicant must demonstrate that there is a “nexus” between the incentive sought and the risks and challenges of the investment being made.

“Industry commenters that propose making the nexus test less rigorous and the commission’s incentives policy more expansive look ahead to justify their recommendations, by speculating on how the commission’s incentive policy must evolve to appropriately incent investment to facilitate the grid of the future,” the California PUC said. That argument is flawed for several reasons, it said, including a lack of evidence that FERC’s incentives have increased transmission reliability, reduced congestion and lowered costs. FERC needs to show proof before it starts adding new incentives for new purposes, such as ensuring resilience in the face of climate change and extreme weather.

The CPUC rejected suggestions that the commission automatically award the abandoned plant and construction work in progress incentives.

“Instead, the CPUC recommends that the commission should now make the nexus test more rigorous, transparent and data-driven by, for example, implementing a cost-benefit analysis, cost caps and other forms of cost containment, and ex post verification of project benefits.”

The New England States Committee on Electricity said it “strongly disagrees” on the need for a new category of FERC transmission rate incentives to help implement state-jurisdictional energy and environmental laws. It pointed to the Massachusetts Department of Public Utilities’ approval of contracts to deliver power over a new 1,200-MW HVDC line, and the 2015 solicitation by Massachusetts, Connecticut and Rhode Island for clean energy projects, none of which ended up needing new transmission, as evidence that “transmission incentive reforms are not needed to advance New England states’ laws.”

The Eastern Massachusetts Consumer-Owned Systems (EMCOS) said the commission “should be wary” of any proposal to grant TOs additional incentives. “The evidence shows that continued transmission investment has produced smaller and smaller benefits to consumers at greater and greater costs,” the group said. “If the commission chooses to revisit Order No. 679, it should examine whether the costs of its current transmission incentives outweigh the benefits produced.”

The grassroots groups were more colorful, urging “the commission to proceed thoughtfully, and with a realization that transmission owners will continue to chase higher returns and profit, no matter the decision reached in this docket.”

“Like any spoiled child whose lollipop is taken away, transmission owners may kick and scream and promise to hold their breath until they die. We all know that’s an impossibility and that highly profitable transmission investment will continue to happen, even without an incentive lollipop.”

Michael Brooks, Amanda Durish Cook, Rich Heidorn Jr., Michael Kuser, Hudson Sangree and Christen Smith contributed to this report.