Commissioner Richard Glick
July 24, 2018
Docket No. ER18-1693-000
“I concur in the Commission’s decision to grant GridLiance West Transco LLC’s (GridLiance) request for transmission rate incentives because GridLiance has satisfied the criteria established in Order No. 679.1
I write separately to express my desire that the Commission revisit our approach to transmission incentives—including the ROE adder for “stand-alone” transmission companies (Transcos) at issue in this proceeding. I also believe that the time has come for the Commission to take a comprehensive look at our various transmission-related initiatives and ensure that any subsequent reforms work in tandem.
“Transmission incentives are an important tool for encouraging investment in transmission facilities, which can provide many benefits, such as enhancing grid reliability, reducing congestion, and facilitating access to remotely located renewable resources. But it is critical that these incentives, which are ultimately paid for by consumers, “actually incentivize[]” investment in transmission facilities that provide those benefits.2
Transmission incentives must not permit transmission owners to earn a higher ROE because of characteristics that do not provide meaningful benefits to consumers.
“In the Energy Policy Act of 2005, Congress required the Commission to develop incentive-based transmission rates to promote reliability and reduce the cost of delivering electricity to consumers.3
The Commission implemented this requirement a year later when it issued Order No. 679, which established, among other incentives, an ROE adder for Transcos (Transco Adder) in order to encourage the formation of Transcos and facilitate their efforts to attract capital.4
The Commission reasoned that the Transco model should be encouraged because, “by eliminating competition for capital between generation and transmission functions and thereby maintaining a singular focus on transmission investment, the Transco model responds more rapidly and precisely to market signals indicating when and where transmission investment is needed” and that Transcos may produce more innovative approaches for meeting these needs.5
“Although that may have been true when the Commission issued Order No. 679, the electricity sector has changed dramatically in the intervening twelve years, not least because of subsequent Commission reforms, such as Order No. 1000,6
that have fundamentally altered the transmission landscape. It is certainly not clear that Transcos are superior to other public utilities that can and do invest in transmission facilities—including competitively developed transmission facilities—or that awarding Transcos a higher ROE actually leads to greater transmission investment. In addition, because the Commission has applied the Transco Adder to transmission companies whose affiliates are involved in other aspects of the electricity sector,7
much of the original rationale for supporting the transmission-only business model has been undermined. Specifically, Transcos with affiliates that operate in other aspects of the electricity sector must compete for capital from a corporate parent, meaning that they may not provide the singular focus on transmission investment that the Commission relied on in Order No. 679.
“As noted above, I believe the Commission should encourage or incentivize transmission development and the efficient operation of the transmission system. Whether the Commission’s current approach achieves this goal is an open question. Accordingly, it is time for the Commission to revisit its transmission incentive program and evaluate whether the incentives established in Order No. 679 are meeting this standard and furthering the goals that Congress established in the Energy Policy Act of 2005. It is especially important that the Commission thoroughly examine its use of ROE incentives, including the Transco Adder, to ensure that they are incentivizing actions and investments that will produce meaningful benefits for consumers. The Commission should also review whether and how its program of incentives is working consistently with Order No. 1000 to promote more efficient and cost-effective investment in the transmission system as well as non-transmission alternatives.
“For these reasons, I respectfully concur.”
- 11 GridLiance West Transco LLC, 164 FERC ¶ 61,049 at PP 42-44 (2018); see Promoting Transmission Investment through Pricing Reform, Order No. 679, FERC Stats. & Regs. ¶ 31,222, at PP 201-202, 221 (Order No. 679), order on reh’g, Order No. 679- A, FERC Stats. & Regs. ¶ 31,236 (2006), order on reh’g, 119 FERC ¶ 61,062 (2007) (discussing the Commission’s policy of return on equity (ROE) incentives for Transcos).
- 22 Southern Cal. Edison Co., 161 FERC ¶ 61,309, at 3 (2018) (Glick, Comm’r, dissenting in part); see Cal. Pub. Utilities Comm’n v. FERC, 879 F.3d 966, 977 (9th Cir. 2018) (discussing the Commission’s “longstanding policy that incentives should only be awarded to induce future behavior”).
- 33 Energy Policy Act of 2005, Pub. L. No. 109-58, 119 Stat. 594 (2005); 16 U.S.C. § 824s (2012).
- 44 Order No. 679, FERC Stats. & Regs. ¶ 31,222 at PP 206, 221.
- 55 Id. PP 222-224.
- 66 Transmission Planning and Cost Allocation by Transmission Owning and Operating Public Utilities, Order No. 1000, FERC Stats. & Regs. ¶ 31,323 (2011), order on reh’g, Order No. 1000-A, 139 FERC ¶ 61,132, order on reh’g, Order No. 1000-B, 141 FERC ¶ 61,044 (2012), aff’d sub nom. S.C. Pub. Serv. Auth. v. FERC, 762 F.3d 41 (D.C. Cir. 2014).
- 77 See GridLiance West Transco LLC, 164 FERC ¶ 61,049 at PP 42-44 (citing NextEra Energy Transmission New York, Inc., 162 FERC ¶ 61,196, at P 51 (2018)).