E-1 Staff Presentation:
Good morning, Chairman Glick and Commissioners,
Item E-1 is a draft Supplemental Notice of Proposed Rulemaking, issued pursuant to sections 206 and 219 of the Federal Power Act, that revises a Commission proposal to reform the Commission’s electric transmission incentives policy. The Commission described a series of transmission incentives reforms in a Notice of Proposed Rulemaking issued on March 20, 2020, which followed a March 21, 2019 Notice of Inquiry into the scope and implementation of its electric transmission incentives regulations and policy. The draft Supplemental NOPR proposes to further refine a single incentive, the Transmission Organization Incentive, and does not address the other proposals contained in the March NOPR.
As relevant to today’s draft Supplemental NOPR, in that March NOPR, the Commission proposed to standardize the incentive for transmitting and electric utilities that join a Transmission Organization, by providing a 100-basis point return on equity (ROE) adder to transmitting utilities that join and remain in Transmission Organizations, where previously it had been the Commission’s practice to grant 50 basis points. The Commission also proposed to remove the existing requirement for this incentive that recipients participate in Transmission Organizations on a voluntary basis. Finally, the Commission proposed to apply the increased incentive prospectively to new applicants and to allow existing Transmission Organization incentive recipients to seek the new 100 basis point adder.
The draft Supplemental NOPR states that, in light of the comments received in response to the March NOPR, the Commission believes that it is appropriate to revise the proposal for the Transmission Organization Incentive. Specifically, the draft Supplemental NOPR notes that, given that section 219 only directs an incentive for entities that “join” a Transmission Organization, the Commission believes that it may tailor this incentive more narrowly to encourage joining, rather than remaining in, a Transmission Organization in perpetuity. It adds that providing the Transmission Organization Incentive indefinitely may not be necessary to incentivize a transmitting utility to join a Transmission Organization and, given the large impact that such an incentive has on ratepayers, may not appropriately balance utility and ratepayer interests, particularly given the substantial benefits of Transmission Organization membership to participating utilities. Several commenters proposed this interpretation of FPA section 219(c), suggesting that the Commission limit the duration of or phase out the incentive for membership in a Transmission Organization.
Accordingly, the draft Supplemental NOPR proposes to modify the Commission’s regulations to codify an ROE adder for a period of three years after a transmitting utility newly joins a Transmission Organization. This three-year period would begin on the date the transmitting utility turns over operational control of its transmission facilities to the Transmission Organization. Consistent with this approach, the draft Supplemental NOPR also proposes to end all existing transmission organization incentives for transmitting utilities that have been members for three or more years. If a transmitting utility joined a Transmission Organization in the previous three years, the draft proposes that its transmission organization incentives would terminate three years from the date it turned over operational control of its transmission facilities.
The draft Supplemental NOPR proposes that a transmitting utility should be eligible for an increase in ROE of 50 basis points because a 50-basis-point Transmission Organization Incentive for three years provides a material incentive to join Transmission Organizations without unduly burdening ratepayers, though it seeks comment on the level and length of this incentive.
Finally, the Supplemental NOPR requests 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 could apply such a standard. The draft Supplemental NOPR observes that removing the voluntariness requirement, as proposed in the March NOPR, is not the only way that the Commission could reduce uncertainty, noting that the requirement could instead be retained, added to the regulations, and clarified with guidance on the circumstances that would make participation voluntary.
Comments and reply comments are due 30 days and 45 days, respectively, after publication in the Federal Register.
Thank you, this concludes our presentation. We are happy to address any questions.