Nixon Peabody’s Maxwell Multer recently moderated a panel at the Infocast Transmission and Interconnection Summit, where the panel discussed the implications of FERC Orders 1920 and 1920-A, as well as the Commission’s current policy on transmission incentive rate treatments.
The panel included Larry Gasteiger, Executive Director of WIRES; Stuart Nachmias, President and CEO of Con Edison Transmission, Inc.; Karen Onaran, President and CEO of the Electricity Consumers Resource Council (ELCON); and Kathleen Ratcliff,[1] Ph.D., Senior Policy Advisor in the Office of Commissioner Judy Chang at FERC. Together, the presenters explored how the orders may shape long-term planning, cost allocation, and the challenges of regional implementation, against the collectively acknowledged backdrop of a broad need for additional transmission buildout.
What’s in FERC Orders 1920 and 1920-A?
FERC Orders 1920 and 1920-A implement reforms to regional electric transmission planning and cost allocation. Here are some of their principal requirements:
- Transmission providers must conduct long-term regional transmission planning on a 20-year horizon, analyzing at least three scenarios considering factors such as regulations, resources, and demand growth.
- Transmission providers must evaluate proposed projects using seven specified benefits, including reliability, cost savings, and resilience to extreme weather.
- The order mandates enhanced transparency in local planning, consideration of advanced transmission technologies, and coordination with generator interconnection processes.
- Transmission providers are required to file one or more default cost allocation methods for long-term regional projects selected through the new long-term planning processes, as well as any proposed State Agreement Process by which state entities may voluntarily agree to a cost allocation method for regional transmission projects.
FERC policy on transmission rate incentives
Section 219 of the Federal Power Act directed FERC to establish incentive-based rate treatments for the transmission of electricity, which it did in FERC Order Numbers 679 and 679-A, and a subsequent policy statement. Pursuant to the procedures established in those orders, FERC is empowered to authorize a variety of transmission rate incentives, including increased return on equity and incentives designed to mitigate certain risks associated with development of transmission, such as the “Abandoned Plant” incentive to reduce risks associated with having to abandon a project for reasons outside of the developer’s control; the “Regulatory Asset” incentive to ensure recovery of prudently incurred pre-construction costs; the 100% recovery of “Construction Work in Progress” incentive; and the “Hypothetical Capital Structure” incentive to improve financial metrics and the project’s cost of capital. To qualify for such incentives, the transmission developer/owner must satisfy the nexus test. That is, the applicant must establish that each incentive requested—and the total package of incentives, if more than one rate incentive is requested—is rationally tailored to the particular risks and challenges of the project.
Conclusion
As the energy sector navigates the complexities of long-term regional planning, cost allocation, and rate incentives, collaboration among stakeholders will be critical to building a resilient and future-ready transmission system. Nixon Peabody’s FERC and energy project finance lawyers are well-positioned to help clients navigate these challenges, offering strategic guidance to support successful transmission development in this dynamic environment.
- The views expressed by Ms. Ratcliff during the panel discussion were her own and do not necessarily reflect the official views of the Federal Energy Regulatory Commission (FERC), the Chairman, the Commissioners or the federal government.
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