Chatterjee to unveil initiative on transmission incentives

Source: Rod Kuckro, E&E News reporter • Posted: Thursday, March 21, 2019

The Federal Energy Regulatory Commission is expected to approve an inquiry today into policies on incentives for transmission projects needed for the nation’s next-generation grid.

FERC Chairman Neil Chatterjee has made robust transmission development a priority. “It’s one of the most important and difficult things that the commission has to tackle,” he said after taking the commission helm last November.

Last week at the CERAWeek by IHS Markit energy conference in Houston, Chatterjee positioned grid improvements as a possible solution to challenges posed in the resilience docket that FERC opened more than a year ago.

The commission last addressed transmission policy in a November 2012 policy statement that many say has grown stale in the electricity industry’s evolution.

FERC is also expected tomorrow to launch a parallel inquiry into its policy for determining the return on equity (ROE) for grid investments.

“There is broad agreement amongst all my colleagues that this is something that we were interested in,” Chatterjee said last November.

At that time, Chatterjee credited former Chairman Kevin McIntyre with pushing for FERC to consider its transmission incentive policies. “We’re looking for smart incentives to ensure that we can enable the proper investment in the grid of the future,” Chatterjee said.

“As to what this might look like; that’s an ongoing discussion.”

The discussion likely will continue for months as FERC gathers reaction from industry participants. Then there will be a period when agency staff will distill public reactions and decide whether to recommend a rewrite of FERC’s last policy statement on transmission that was issued in 2012.

So the process could take well over a year, said Kevin Huyler, National Grid’s director of federal regulatory affairs.

Huyler also heads the policy committee for WIRES, a Washington-based lobby of utility transmission providers, transmission customers, regional grid managers, and equipment and service companies that is keenly interested in FERC moving ahead.

“It’ll be interesting to see what this inquiry actually looks like,” Huyler said, as Chatterjee has listed several areas where the commission can work on transmission issues, such as resilience, return on equity and grid interconnections.

As Huyler sees it, FERC has two procedural options.

One would offer a proposed policy statement “with the commission saying, ‘Here’s what we propose to do. Please respond,'” reflecting “a well-formed policy piece showing the commission has done some work and laid out a path forward.”

But “if they came out with something that said we’re going to take away a bunch of existing incentives, it would put the industry on its back foot,” Huyler said.

As an alternative, FERC could pursue the path it took with the 2012 policy statement, he said. That inquiry began “with a list of questions, which is sort of a step farther back in the policy formulation process,” he said.

But “that process took a year and a half,” with FERC posing more than 80 questions.

“I would take heart if they did ask questions,” Huyler said, but a list “shorter than longer would be preferable from my perspective.”

One perspective missing from debates about transmission projects is their value to the customer, Huyler said.

“The current lens that the commission uses to evaluate incentives requests is around the risks and challenges of a particular project,” he said. “To see that broadened to include the value that a project brings to customers would be a good thing.”

Looking at only risks and challenges “invites applicants to talks about what’s hard about a project whereas the value lens invites the applicant to talk about the benefits of a project,” he said.

Ensuring benefits to consumers

FERC Commissioner Richard Glick has had a long-standing interest in revisiting transmission policies, raising it in July in the context of his vote for GridLiance West Transco LLC’s request for transmission rate incentives.

“The electricity sector has changed dramatically” since the 2012 policy statement, Glick said.

“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,” he said.

“But it is critical that these incentives, which are ultimately paid for by consumers, actually incentivize investment in transmission facilities that provide those benefits. Transmission incentives must not permit transmission owners to earn a higher ROE because of characteristics that do not provide meaningful benefits to consumers.”

Boosting the returns on interstate transmission investments is a priority for the nation’s investor-owned utilities. At a meeting of the Edison Electric Institute’s board in Washington last week, they were presented with a new white paper on the value of electric transmission.

EEI in 2018 had published a white paper that identified “shortcomings” in FERC’s approach for estimating just and reasonable financial returns for critical transmission investments.

On the other hand, the nation’s public power utilities think FERC has not done enough to rein in the transmission rates paid by their not-for-profit community-owned utilities.

At a late February meeting in Washington, the American Public Power Association approved a resolution urging FERC to ensure that “project-specific incentives are justified by project risks and challenges” and not applied to cost overruns.

“Some members have had their transmission rates more than double in seven years when their [demand] has not risen that much at all,” said Sue Kelly, president and CEO of APPA. “This is becoming very onerous and concerning to our members.”

In his November remarks unveiling his interest, Chatterjee said meeting with transmission owners as well as consumer groups convinced him of the need to put “smart incentives in place but also protect consumers.”

Large transmission projects “entail a lot of risk,” he said, so FERC needs to act to make sure “that there’s the right incentives in place to recognize that risk and attract investment.”

“If 10 years from now we can look back and say that we were able to enable this infrastructure build-out while protecting consumers, I’ll be very satisfied,” Chatterjee said.