Federal Energy Regulatory Commission (“FERC”) Chairman Neil Chatterjee has indicated that FERC’s Return on Equity (“ROE”) and transmission incentives rate policies are the key to shaping the future of the modern grid. Accordingly, on March 21, 2019, the FERC issued two Notices of Inquiry to examine:
ROE Notice of Inquiry.
- potential modifications to FERC’s approach to determining a just and reasonable ROE for public utilities, as well as interstate natural gas and oil pipelines (“ROE Notice of Inquiry”)(FERC Docket No. PL19-4-000); and
- the scope and implementation of FERC’s electric transmission rates incentive regulation and policy, which was issued in 2006 in Orders No. 679 and 679-A pursuant to the directives of Section 219 of the Federal Power Act as amended in the Energy Policy Act of 2005 (“Transmission Incentives Notice of Inquiry”)(FERC Docket No. PL19-3-000).
The ROE Notice of Inquiry seeks comments on eight broad areas associated with determining whether, and if so how, to revise its policies on determining the ROE used in setting rates charged by jurisdictional public utilities, and whether any changes should be applied to interstate natural gas and oil pipelines.
In an October 16, 2018 order
upon remand from the U.S. Court of Appeals for the District of Columbia Circuit’s decision in Emera Maine v. FERC
, FERC proposed to move from its traditional approach of relying exclusively on the Discounted Cash Flow methodology in determining a public utility’s base ROE to instead giving equal weight to four different financial models and directed the participants to the applicable proceedings to submit briefs regarding the new proposed methodology. The ROE Notice of Inquiry acknowledges that the importance of its ROE policy for public utilities extends beyond the particular interests of the parties to the Emera Maine
proceeding, and is thus intended to provide all stakeholders an opportunity to weigh in on FERC’s approach of determining the ROE for regulated entities. Transmission Incentives Notice of Inquiry.
FERC seeks comments on possible improvements to its transmission incentive rates policy, which was last revisited in a 2012 policy statement
, consistent with Congress’ directives in section 219 of the Federal Power Act to use transmission incentives to help ensure reliability and reduce the cost of delivered power by reducing transmission congestion. The Notice of Inquiry examines whether incentives should continue to be based on a project’s risks or challenges, or should be based more broadly on the reliability and economic benefits that a project can provide. Topics to be explored include: (1) whether incentives should be based upon measurable criteria for economic efficiency and reliability benefits, (2) providing incentives for improvements to existing transmission facilities, (3) considering the costs and benefits of projects in awarding incentives, and (4) determining whether to review incentive applications on a case-specific or standardized basis. FERC Commissioner LaFleur highlighted at the March 21, 2019 Open Meeting that she is interested in comments on issues such as the interplay between FERC’s transmission planning policy as articulated in Order No. 1000 and FERC’s transmission incentive rate policy to promote FERC’s goals of incentivizing cost effective and efficient transmission development and competition in the transmission planning process.
Initial comments on each Notice of Inquiry are due June 26, 2019. Reply comments on the ROE Notice of Inquiry are due July 26, 2019 and on August 26, 2019 for the Transmission Incentives Notice of Inquiry.
Additional Links: FERC News Release on ROE Notice of Inquiry FERC Staff Presentation on ROE Notice of Inquiry FERC Staff Presentation on Transmission Incentives Notice of Inquiry FERC News Release on Transmission Incentives Notice of Inquiry