Commissioner Richard Glick Statement
December 31, 2020
Docket Nos. ER21-253-000, ER21-265-000
I dissent in part from today’s order because the Filing Parties have not shown that it would be just and reasonable to award an RTO Participation Adder in this proceeding. Instead, the protests in this proceeding aptly illustrate why the Commission’s current approach to the RTO Participation Adder is bad policy. The long and short of that approach is that the Commission hands out a perpetual 50-basis-point ROE adder to any public utility that is a member of a Transmission Organization, such as an RTO,[1] provided that the public utility is not required by state law to be a member of such an organization.[2] That approach is gratuitous and a poor fit with the requirements of section 219 of the FPA.
Section 219(c) requires the Commission to “provide for incentives to each transmitting utility or electric utility that joins a Transmission Organization.”[3] “Joins” is the key term. It suggests that Congress was focused on inducing public utilities to take the plunge and enter an RTO. After all, it seems perfectly reasonable to believe that the substantial benefits of RTO membership would be more than enough to ensure that, once in an RTO, a public utility is overwhelmingly likely to remain there. In addition, Congress could easily have required the Commission to hand out an incentive to any public utility that is a member of an RTO rather than focusing on those that join one. Congress chose not to take that path and we should respect that choice by not stretching the RTO Participation Adder beyond Congress’s directive in section 219(c).
What is more, as the Allegheny Regional Customer-Aligned Parties (ARCAP)[4] point out, Section 219(c) is not the only relevant provision here.[5] Section 219(d) provides that any incentives awarded must be just and reasonable and not unduly discriminatory or preferential.[6] Giving meaning to that provision requires the Commission to ensure that, among other things, the incentives awarded under section 219 are roughly proportional to the inducement needed to secure the action being incentivized. An incentive that is significantly in excess of what is required to induce a public utility to take the desired action is a windfall, not a just and reasonable rate.[7]
The RTO Participation Adder has become just such a windfall. ARCAP’s protest in this proceeding aptly illustrates why a perpetual 50-basis-point RTO Participation Adder is not just and reasonable. First and foremost, RTOs, including PJM, provide billions of dollars’ worth of benefits per year, which “appears to provide a greater inducement for joining and remaining in an RTO than does any ROE adder for RTO participation.”[8] In addition, RTOs are no longer the relatively novel organizations that they were when the Commission issued Order No. 679 in 2006.[9] As a result, public utilities—particularly those that are already in an RTO—know generally what they are signing up for through RTO membership. Under those circumstances, there is little reason to believe that a perpetual 50-basis-point ROE adder is even remotely necessary to keep public utilities in RTOs or that the substantial costs imposed on customers by that adder are roughly proportional to the inducement it provides.[10]
In light of the foregoing discussion, I do not believe that the record in this proceeding shows that Filing Parties should receive an RTO Participation Adder. In Order No. 679, the Commission explained that it would award an RTO Participation Adder “when justified” after conducting a “case-by-case” inquiry in each proceeding.[11] Although it explained that a public utility that is an ongoing member in a Transmission Organization would “be presumed to be eligible” for the incentive,[12] a presumption is just that and can be rebutted through the course of the Commission’s case-by-case inquiry.
The ARCAP arguments discussed above are sufficient to rebut that presumption, which places the burden of proof back on the parties seeking the incentive. Filing Parties’ arguments focus largely on the fact that the Commission has awarded the RTO Participation Adder as a matter of course and that doing so here would not cause their ROE to exceed the zone of reasonableness established by the Commission’s methodology for setting ROEs.[13] Given my misgivings about the Commission’s current approach to the RTO Participation Adder, I do not believe that those arguments establish that awarding Filing Parties a perpetual 50-basis-point ROE adder is just and reasonable. Accordingly, I would set Filing Parties’ request for an RTO Participation Adder for hearing, along with the other issues raised in this proceeding.
Finally, on a more general level, I believe that a far better approach to implementing section 219(c) would be for the Commission to award an ROE adder for a fixed period of time after a public utility joins an RTO. Although I am inclined to think that a one-year incentive would be appropriate, I can also see the case for a longer duration incentive of up to five years following a public utility’s joining an RTO. An approach along those lines would give meaning to both sections 219(c) and 219(d) of the FPA by creating an inducement for utilities to join an RTO while also ensuring that the cost of that incentive is not out of proportion to the inducement needed to secure the desired action—i.e., joining an RTO.
For these reasons, I respectfully dissent in part.
[1] Although it is generally referred to as the “RTO Participation Adder,” the adder is not available only to public utilities that participate in an RTO. See Dayton Power & Light Co., 172 FERC ¶ 61,140 (2020) (Glick, Comm’r, dissenting in part at P 3) (discussing the definition of “Transmission Organization” in the Federal Power Act (FPA) and the Commission’s regulations).
[2] See, e.g., id. P 22 (setting for hearing only the question of whether Transmission Organization membership was voluntary). The Commission has issued, but not finalized, a notice of proposed rulemaking that would increase the RTO Participation Adder from 50 to 100 basis points and eliminate the voluntariness requirement. Elec. Transmission Incentives Pol’y Under Section 219 of the Federal Power Act, 170 FERC ¶ 61,204, at PP 98-99 (2020) (Incentives NOPR).
[3] 16 U.S.C. § 824s(c).
[4] ARCAP consists of the Allegheny Region Large Users Group, the Maryland Office of People's Counsel, Pennsylvania Office of Consumer Advocate, and West Virginia Consumer Advocate Division.
[5] ARCAP Protest at 21.
[6] 16 U.S.C. § 824s(d).
[7] See, e.g., Incentives NOPR, 170 FERC ¶ 61,204 (Glick, Comm’r, dissenting in part at P 4) (“A payment that does not incentivize anything is a handout, not an incentive. Handing out customers’ money to transmission owners without a strong belief that that money will induce beneficial conduct is unjust and unreasonable and inconsistent with Congress’ intent behind section 219.”) (footnote omitted).
[8] ARCAP Protest at 22.
[9] See Promoting Transmission Inv. through Pricing Reform, Order No. 679, 116 FERC ¶ 61,057, order on reh’g, Order No. 679-A, 117 FERC ¶ 61,345 (2006) (Order 679-A), order on reh’g, Order No. 679-B, 119 FERC ¶ 61,062 (2007).
[10] ARCAP Protest at 21-23.
[11] Order No. 679, 116 FERC ¶ 61,057 at P 326.
[12] Id. P 327.
[13] See, e.g., South FirstEnergy Operating Companies Transmittal Letter at 9. Filing Parties also largely restate the logic in the Commission’s proposed, but not finalized, rule on transmission incentives, which focuses on the benefits of RTO membership. See Motion for Leave to Answer and Answer of South FirstEnergy Operating Companies at 18-20.