The American Public Power Association (APPA) supports a Federal Energy Regulatory Commission’s supplemental notice of proposed rulemaking (NOPR) issued this spring that addresses the return on equity (ROE) incentive adder currently awarded to transmitting utilities that participate in regional transmission organizations and independent system operators, APPA said in a filing at FERC.
In the April 15, 2021 supplemental NOPR (Docket No. RM20-10), FERC proposed changes to its regulations and policies governing incentives for participation in transmission organizations under section 219 of the Federal Power Act (FPA).
APPA has long expressed concern with the Commission’s policy of granting a ROE adder to utilities merely for remaining in transmission organizations and APPA “supports the course correction” proposed in the supplemental NOPR, APPA said in June 25 comments.
In an earlier NOPR in this proceeding issued by FERC in March 2020, FERC proposed to award a 100-basis point ROE adder to transmitting and electric utilities for as long as they participate in a transmission organization, regardless of the voluntariness of such participation. APPA filed comments opposing that proposal.
Citing the comments of APPA and other parties, the supplemental NOPR would revise the March 2020 proposal by adopting a standardized 50-basis point ROE adder for participation in a transmission organization and limiting the availability of this adder to the first three years after a transmitting utility transfers operational control of its facilities to the transmission organization.
Consistent with this framework, the Commission also proposes to require transmitting utilities that have received the transmission organization incentive for three or more years to make compliance filings removing the incentive.
The supplemental NOPR also seeks comment “on whether the transmission organization incentive should be available only to transmitting utilities that join a transmission organization voluntarily,” and, if so, “how the Commission should apply that standard.”
APPA praised FERC for revisiting its regulations governing transmission organization participation incentives under FPA section 219.
The Commission’s proposal to award adders for a three-year period would prevent the transmission organization incentive from persisting as an unjust and unreasonable “bonus for good behavior,” APPA said.
“While eliminating the use of ROE adders altogether would be a reasonable policy choice, removing the adder from the rates of utilities that have been transmission organization members for more than three years will provide immediate transmission rate relief to consumers while leaving in place an incentive framework that may encourage utilities to join Transmission Organizations, consistent with FPA section 219(c),” APPA went on to say.
The use of a short-term ROE adder to encourage utilities to join transmission organizations is a straightforward mechanism that arguably helps address the transitional concerns that some utilities may have about joining a transmission organization, APPA said.
“Providing transmission rate relief from unjustified ROE adders is particularly warranted given the extraordinary increases in transmission costs for many customers in recent years,” the public power trade group said. “In considering comments on the supplemental NOPR, it is essential for the Commission to keep in mind that the increased level of transmission investment in recent years has already led to a significant rise in the transmission costs paid by customers in many regions of the country.”
Perpetuating an ROE adder for ongoing transmission organization participation “needlessly adds an additional cost burden that cannot be justified under the FPA’s just and reasonable standard,” APPA argued.
It said that the Commission’s proposal to restrict the transmission organization incentive to a three-year period is legally sound and a wise public policy choice. The Commission is justified in reconsidering its existing policy that collecting an ROE adder simply for remaining in a transmission organization comports with FPA section 219.
APPA also argued that the transmission organization incentive must be limited to utilities whose participation is voluntary. For example, utilities may be required by state law to participate in RTOs or ISOs, which negates the need for a utility to receive an incentive, according to the comments. Whether a utility’s participation in a transmission organization is voluntary should be decided on a case-by-case basis, APPA said.
“A public utility proposing to collect a transmission organization incentive should be required to identify any federal or state law, regulation, or order, or any private contractual obligation, that bears on the voluntariness of its participation in the transmission organization, and the applicant should be required to demonstrate that its participation in the transmission organization is voluntary notwithstanding any identified legal requirements compelling participation and/or limiting withdrawal,” APPA said.