Transmission owners spar with consumer advocates over FERC bid to pull RTO adder

A Federal Energy Regulatory Commission proposal to eliminate a 50-basis point rate incentive for utilities that joined regional transmission organizations has drawn fierce pushback from investor-owned utilities and pro-transmission nonprofits.

But public power trade groups, state regulators and consumer advocates argued that the supplemental proposal, unveiled in April as part of a broader effort to revamp FERC's transmission incentives policies, strikes an appropriate balance in shielding customers from an estimated $400 million in annual costs.

At issue is a March 2020 proposed rule (RM20-10) that would have doubled FERC's existing 50-basis-point adder for RTO participation to 100 basis points. In issuing that proposal, FERC cited total annual benefits for customers in the PJM Interconnection, Midcontinent ISO and the Southwest Power Pool of approximately $10 billion.

Encouraged by FERC and formed in the late 1990s and early 2000s, RTOs and independent system operators generate billions of dollars in annual savings for consumers by coordinating least-cost generator dispatch and regional transmission planning. Approximately two-thirds of Americans are now served by utilities that participate in RTOs or ISOs, while much of the U.S West and Southeast remains outside organized wholesale power markets.

Chairman Richard Glick penned a partial dissent to the March 2020 proposal as a commissioner in the minority, however, arguing that the agency's existing RTO adder should be "tailored" to entice transmission owners yet to join a FERC-jurisdictional grid operator.

Such an approach would fulfill Section 219(c) of the Federal Power Act's requirement that FERC use rate incentives to encourage transmission owners to join RTOs while also respecting Section 219(d) of the statute's mandate to ensure that rates remain just and reasonable, Glick said.

In line with comments filed by consumer advocates, a divided FERC issued a supplemental proposal in April that would eliminate the RTO adder for utilities that have already joined a regional grid operator after three years. The supplemental proposal included two separate dissents by Commissioners Neil Chatterjee and James Danly as well as a concurring statement by Commissioner Mark Christie, with initial comments due June 25.

Legal considerations

Parties were largely split on whether FERC's proposed action reflects an appropriate interpretation of Section 219(c), a provision of the Federal Power Act dating back to 2005.

The Edison Electric Institute, the nation's investor-owned utility trade group, argued that a proposal to effectively eliminate the adder for most current RTO members "is inconsistent with the text, structure, and purpose of" Section 219.

"While the commission can calibrate the appropriate incentive, Section 219 does not give the commission authority to eliminate the incentive or limit the length of time the incentive is provided," EEI asserted. "Nor does it permit the commission to effectively eliminate such incentive by otherwise restricting its availability."

EEI's comments included an affidavit by former U.S. Rep. Joe Barton, a member of the U.S. House-Senate conference committee for the Energy Policy Act of 2005, which included the Section 219 revisions.

"Consistent with my instructions to conference committee staff around ambiguity, if the committee had intended that the incentive to a utility that joins a transmission organization was meant to be a one-time payment or one-time deal, I would have instructed conference committee staff to make that clear in the language of the statute," the Texas Republican said.

However, the American Public Power Association contended that the language of Section 219(c) is unambiguously aimed at incentivizing utilities to "join" transmission organizations.

"If Congress had wished to mandate incentives for utilities to 'participate' or 'remain' in a transmission organization, it could easily have said so," the trade group said. APPA also argued that incentive rates are meant to induce future behavior and, therefore, FERC "cannot provide an 'incentive' for a utility to perform an action it has already undertaken."

'Economic rent'

Turning to other considerations, a coalition of MISO generation and transmission cooperatives noted that most of the largest transmission operators that joined the 15-state transmission organization did so well before they eventually began receiving the rate incentive in 2015.

"Because the transmission organization incentive played little, if any, role in the decisions of most MISO transmission owners to join or remain members in MISO, it is unclear what behavior the transmission organization incentive has incentivized over the past 15 years," the group said.

The Organization of PJM States, an intergovernmental coalition of utility regulatory agencies, also pointed to an "explosion" in recent years of supplemental grid reliability projects shielded from FERC's competitive bidding rules for RTOs and ISOs.

"There may be significant value to RTO participation today, but states and consumers deserve all of the value of RTO participation — something they have yet to receive on the issue of transmission," the organization said. "Continuing to pay transmission owners more for something they must do absent RTO participation amounts to nothing more than economic rent."

A coalition of consumer advocates and landowner groups also highlighted excerpts from recent earnings calls with FirstEnergy Corp. and Ameren Corp. executives who estimated that losing the 50-basis-point adder would likely shave between 4 and 5 cents off their respective share prices.

"For utilities, the loss of the RTO participation adder is all about earnings and share dividends," the coalition argued. "It's not about encouraging more regional planning, providing consumer benefits, or compensation for utility financial hardship related to RTO membership."

'Time-critical and especially needed'

But WIRES Group, a nonprofit association of investor-owned, publicly owned and cooperatively owned transmission providers, disagreed on that point.

FERC has tasked the RTOs and ISOs it oversees, as well as their members, with implementing sweeping rules on transmission planning, energy storage and aggregations of distributed energy resources, among others, WIRES noted.

The commission's supplemental proposal "does not appear to take into account the full measure of burdens and risks borne by RTO members or the benefits, both quantitative and qualitative, provided by existing RTOs to consumers," WIRES said.

MISO and SPP also filed joint comments citing a need for regulatory certainty as developers in their footprints seek the capital investments in transmission needed to accommodate a growing number of renewable energy resources.

"For MISO and SPP, these capital investments are time-critical and especially needed to further interconnect renewable energy sources and diversify our nation's power supply, while also working to maintain wholesale grid reliability," the grid operators said.

And the Renewable Energy Buyers Alliance, a group whose members include Amazon.com Inc., Walmart Inc. and McDonald's Corp., cited a June 2 letter from a bipartisan group of nine former FERC chairs and commissioners urging the agency "to use the broad authorities and tools available under the Federal Power Act to move toward well-structured organized power markets in all regions of the country."