By Rich Heidorn Jr.

A split Federal Energy Regulatory Commission on Tuesday granted ITC Midwest’s request for an incentive adder but cut the bonus in half, prompting a dissent from Commissioners Philip Moeller and Tony Clark.

ITC had requested an adder of 100 basis points, consistent with what the commission has granted “independent, stand-alone” transmission companies (transcos) since such incentives were authorized by Congress in 2005 to increase transmission spending.

In response to that directive, the commission issued Order 679, concluding that the transco business model responds more rapidly and precisely to market signals and was thus deserving of an incentive.

“We continue to find that the transco business model provides the benefits that the commission recognized in Order No. 679. However, we note that the commission did not specify the size of the transco adder in Order No. 679,” the commission wrote (ER15-945).

Under current conditions, the commission said, 100 basis points is excessive. “We conclude that 50 basis points is an appropriate size for the transco adder, taking into account the interests of consumers and applicants, as well as current market conditions. Granting this 50-basis-point adder strikes the right balance by appropriately encouraging independent transmission consistent with Order No. 679, while acknowledging protesters’ concerns regarding the rate impacts of such adders.”

The commission said the adder would be applied to a base return on equity within the “zone of reasonableness” determined by an updated discounted cash flow analysis being conducted in docket EL14-12. (See ROE Talks Between MISO Industrials and TOs Collapse.) ITC said it would defer collection of the adder, which became effective April 1, pending the outcome of that proceeding.

Dissent

Moeller and Clark blasted the majority’s ruling, the first time that the commission has reduced a requested transco adder.

“The majority has not provided any guidance as to what showing is necessary to support a 100-basis-point adder moving forward,” they wrote.

“This order also sends the wrong message at a time when new regulations, such as the [Environmental Protection Agency’s] Clean Power Plan, will likely drive the need for more transmission investment.” (See related story, MISO, SPP Stakeholders Developing Trading Plan to Comply with EPA Carbon Rule.)

“We also find it puzzling that the commission would reduce transmission incentives for a transco business model when it is just beginning to see the effects of competitive solicitation under Order No. 1000,” the commissioners continued. “These mixed messages from the commission on the value of innovative business models and transmission investment decrease regulatory certainty at a time when it is most needed.”