Last week FERC Chair Joe Kelliher announced that his agency will soon explore ways to induce transmission investment. The Domenici-Barton Energy Policy Act of 2005 ("EPAct 2005") directs FERC to issue a rule establishing transmission incentive rates within one year of EPAct 2005's August 8 enactment. The investment initiative will proceed "in tandem" with FERC's just-announced proposal to update its Order No. 888 open-access transmission tariff. [See FERC to Reprise Open Access Nearly Ten Years after Its Launch]. It would be the latest iteration of an evolving approach to FERC's transmission policy that began with its incentive pricing policy first introduced in January 2003.
An earlier initiative undertaken in January 2003 would have tied increased earnings on transmission investments to the transmission owner's participation in an independent RTO, but that proposal never made it beyond an extended comment period. Other than a narrow policy statement issued last June addressing the passive ownership of Independent Transmission Companies ("ITCs") [See FERC Takes a Second Look at the Independent Ownership and Operation of Power Transmission Systems], the issue of investment incentives has languished. But with the EPAct 2005 directive and a change in leadership, FERC now appears poised to tackle the issue.
According to Kelliher, the 2003 transmission policy placed too much emphasis on participation in RTOs rather than on providing transmission investment incentives. Noting that more transmission investment has occurred in areas that did not engage in regional planning, Kelliher made the surprising observation that RTOs can be "barriers" to open-access transmission. While FERC has authorized the incentives suggested in the 2003 transmission policy in individual cases, Kelliher foresees broader use of transmission incentives under EPAct 2005. He predicted that the agency's policies going forward would be more flexible and could confer higher earnings on the transmission investments of affiliated transcos as well as ITCs. But he ruled out the use of performance-based rates because, in areas with disaggregated transmission ownership, it would be too difficult to ascertain which owner was responsible for improved performance. [NEW MATTER]