• Sufficient economic benefits: The Transmission NOPR proposes to provide ROE incentives to public utilities for developing transmission projects that offer substantially more economic benefits than the average transmission project. The Commission will use a benefit-to-cost ratio to evaluate whether economic transmission projects are eligible for ROE incentives. The economic benefits analysis will consider adjusted production cost, similar measures of congestion reduction, and other quantifiable benefits that are verifiable and not duplicative. The Transmission Incentive NOPR also proposes a $25 million benchmark, adjusted annually for inflation, to distinguish small system modifications from significant transmission facility expansions that warrant ROE incentives.  Transmission projects that fall in the top seventy-fifth percentile of transmission projects based on an economic benefit-to-cost ratio will be eligible for a 50-basis-point ROE incentive.  An additional 50-basis-point ROE adder would be available for transmission projects that demonstrate ex-post cost savings that fall in the ninetieth percentile of transmission projects studied over the same sample period, as measured at the end of construction.
• Reliability benefits: The Transmission Incentive NOPR proposes that transmission developers will also be eligible to receive up to 50 ROE basis points for transmission projects that demonstrate significant reliability benefits beyond the applicable NERC reliability standards. Requests for reliability benefits would be required to be supported by quantitative and qualitative analyses, and the Commission would evaluate requests related to reliability benefits on a case-by-case basis. The Transmission Incentive NOPR recommends that reliability analyses consider reduced loss of load probability, reduced unserved energy under various contingencies, reductions in reliability unit commitments, increases in import or export capability, and improvements in voltage stability.
• No exclusive incentives for Transcos: Although the Transmission Incentive NOPR provides new incentives for the development of transmission infrastructure, it also eliminates ROE incentives and acquisition adjustments exclusively for stand-alone transmission companies (Transcos). However, Transcos would still be able to request transmission incentives available to all public utilities.
• RTO/ISO participation incentive: The Transmission Incentive NOPR proposes a fixed 100-basis point ROE incentive to any transmitting utilities or electric utilities for participating in an independent system operator (ISO), regional transmission organization (RTO), or other Commission approved transmission organization. Transmitting utilities or electric utilities will still be able to recover prudently incurred costs associated with joining an RTO or ISO in their jurisdictional rates.
• New technology deployment incentive: Public utilities that deploy technologies that enhance reliability, efficiency, and capacity, and improve the operation of new or existing transmission facilities may seek a 100-basis-point ROE incentive. Examples of eligible technology in the Transmission Incentive NOPR include: (1) advanced line rating management; (2) transmission topology optimization; and (3) power flow control. However, the Transmission Incentive NOPR provides the Commission with flexibility to make a case-by-case determination of eligibility based on the characteristics of the technology and the benefits that the technology offers. The Transmission Incentive NOPR also proposes to defer up to two years of specified initial costs for the installation and operation of eligible transmission technology that would otherwise be expensed in the year incurred, to be amortized over a five-year period.
• Incentive cap not bound by zone of reasonableness: The Transmission Incentive NOPR proposes a 250-basis-point cap on total ROE incentives. However, the incentive cap would no longer be bound by the public utility’s zone of reasonableness. Currently, all FERC-jurisdictional transmission utilities must have a base ROE that falls within a range of presumptively just ROEs (i.e., the zone of reasonableness). Order No. 679 previously provided that an applicant’s overall ROE, the base ROE inclusive of any incentive adders, must be within the zone of reasonableness: “[An] incentive rate of return sought by an applicant must be within a range of reasonable returns and the rate proposal as a whole must be within the zone of reasonableness before it will be approved.”⁶ The Transmission Incentive NOPR, however, proposes to eliminate the zone of reasonableness limitation and would therefore allow the overall ROE to exceed the upper end of the zone of reasonableness.

The Transmission Incentive NOPR also modifies the data reporting process for transmission incentive applicants by requiring information on a project-by-project basis. All public utilities that receive a transmission incentive, other than the RTO/ISO participation incentive, will be required to submit information on Form 730 regardless of the transmission project’s size. However, public utilities that receive only the RTO/ISO participation incentive must submit a report only for transmission projects that cost more than $3 million. The Transmission Incentive NOPR further proposes that reporting on benefits calculations, both the expected and the actual, should only apply to transmission projects that are $25 million or more in scale to reduce the reporting burden. Form 730 data must be submitted in eXtensible Business Reporting Language (XBRL).

Finally, the Commission’s Transmission Incentive NOPR proposes to continue providing non-ROE incentives to all transmission projects that ensure reliability or reduce the cost of delivered power by reducing transmission congestion. These incentives include the abandoned plant incentive, construction work in progress incentives, hypothetical capital structure, accelerated depreciation for rate recovery, and regulatory asset treatment.

The Commission has requested comments on the Transmission Incentive NOPR within 90 days after the date of publication in the Federal Register. Parties interested in commenting on the Transmission Incentive NOPR must file their comments with the Commission in FERC Docket No. RM20-10-000.

1. Electric Transmission Incentives Policy Under Section 219 of the Federal Power Act, Notice of Proposed Rulemaking, 170 FERC ¶ 61,204 (2020).
2. 16 U.S.C. section 824s (2012).
3. Promoting Transmission Investment through Pricing Reform, Order No. 679, 116 FERC ¶ 61,057, order on reh’g, Order No. 679-A, 117 FERC ¶ 61,345 (2006), order on reh’g 119 FERC ¶ 61,062 (2007).  The Commission’s transmission incentive policy is codified in section 35.35 of the Commission’s rules and regulations. 18 C.F.R. 35.35 (2019).
4. Transmission Planning and Cost Allocation by Transmission Owning and Operating Public Utilities, Order No. 1000, 136 FERC ¶ 61,051 (2011), order on reh’g, Order No. 1000-A, 139 FERC ¶ 61,132, order on reh’g and clarification, 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).
5. Promoting Transmission Investment Through Pricing Reform, 141 FERC ¶ 61,129 (2012).
6. Order No. 679, FERC Stats. & Regs. ¶ 31,222 at P 2.

Client Alert 2020-160