latest-news-headlines Market Intelligence /marketintelligence/en/news-insights/latest-news-headlines/transmission-heavy-ferc-meeting-sparks-debate-on-pulling-rto-grid-incentive-63681310 content esgSubNav
In This List

Transmission-heavy FERC meeting sparks debate on pulling RTO grid incentive


Exploring the Energy Dynamics of AI Datacenters: A Dual-Edged Sword


Despite turmoil, project finance remains keen on offshore wind

Case Study

An Energy Company Assesses Datacenter Demand for Renewable Energy


Japan M&A By the Numbers: Q4 2023

Transmission-heavy FERC meeting sparks debate on pulling RTO grid incentive

The Federal Energy Regulatory Commission on April 15 announced multiple moves related to the expansion of the power grid, including a new coordination effort with state regulators and a workshop to explore allowing companies to share in consumer savings generated by grid-enhancing technologies.

A divided FERC also approved a draft supplemental proposal that would walk back an earlier proposal to double a 50-basis-point incentive for public utilities that join regional transmission organizations or independent system operators.

The draft proposal, which comes as President Joe Biden aims to decarbonize the U.S. power sector by 2035, drew a sharp dissent from Commissioner Neil Chatterjee who argued the move will undermine efforts to do just that.

But Chairman Richard Glick was joined by two other commissioners in arguing that eliminating the transmission organization adder after three years — projected by staff to save consumers $350 million annually — is worthy of consideration.

Members spar over transmission organization adder

At issue is a March 2020 proposed rule (RM20-10), issued when Chatterjee chaired the commission, that seeks to revamp the agency's transmission incentives policy to focus on economic benefits instead of the risks and challenges projects face.

The April 15 supplemental draft order only addresses a provision in the earlier proposal to double a regional grid operator adder from 50 basis points to 100 basis points, a move supported by grid-focused trade groups but opposed by consumer advocates and states like California that already mandate such participation.

"Utilities may need an incentive to join an RTO but once they're there, they're going to have significant benefits," Glick said during the commission's monthly open meeting. "I think they're going to stay in the RTO anyway."

Encouraged by FERC and formed in the late 1990s and early 2000s, RTOs and ISOs 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 of organized wholesale power markets.

In January, top U.S. corporations including Inc., Walmart Inc. and McDonald's Corp., jointly asked lawmakers to prioritize wholesale power market expansion as part of a strategy "that greens the grid for all."

Democrats in the U.S. House of Representatives have since reintroduced legislation that would require public utilities to place their transmission facilities under the control of a regional grid operator within two years, but the nearly 1,000-page bill's fate is uncertain given the party's narrow majority in the U.S. Senate.

In outlining his dissent on the draft order, Chatterjee argued during the meeting that the supplemental proposal will discourage more utilities from voluntarily joining organized wholesale markets.

"Despite the fact that RTO expansion has generally stalled, the proposal slashes the incentive as it would apply to any and all new prospective members, providing substantially less reason for utilities to join RTOs," Chatterjee said.

Chatterjee also argued the supplemental proposal runs contrary to FERC Orders 679 and 679-A, which were issued to implement Section 219(c) of the Federal Power Act. That section of the statute, added by the Energy Policy Act of 2005, requires the commission to provide incentives to utilities that join FERC-jurisdictional regional grid operators.

However, Glick asserted during the meeting that Section 219(c) merely requires incentives for "joining" a regional grid operator and does not require incentives "in perpetuity."

Siding with Glick on the matter, Commissioner Mark Christie, a consumer-minded former Virginia utility regulator, also disagreed with the notion that eliminating the adder will chill transmission investment. "Removing the adder is not going to make it impossible to raise capital or get investment," Christie said.

Under FERC's March 2020 proposal, transmission projects that can demonstrate economic benefits and ex-post cost savings would be eligible for return on equity adders of 50 basis points. The proposed rule would also award an additional 100 basis points for transmission technologies that improve the operation of new or existing transmission technologies.

Despite leaving those incentives on the table, the April 15 supplemental proposal drew criticism from Larry Gasteiger, a former FERC chief of staff who is now executive director of the trade group WIRES.

"Unfortunately, FERC's proposed action sends the wrong signal at a time when encouraging transmission owners to pursue more inter- and intraregional transmission planning is critical to getting strategic infrastructure built if we are to meet the administration's clean energy goals," Gasteiger said.

Comments on FERC's April 15 supplemental proposal are due 30 days after its publication in the Federal Register.

'Shared savings' workshop, NARUC coordination

In a related move, FERC announced a Sept. 10 workshop as part of the transmission incentives proceeding to explore the tradeoffs associated with a "shared savings" model for grid-enhancing technologies capable of squeezing more capacity out of existing transmission lines.

In response to a March 2019 notice of inquiry (PL19-3), groups such as the WATT Coalition noted that shared savings incentives in the United Kingdom and Australia have spurred the deployment of technologies that rely on real-time weather data such as dynamic line ratings.

"We are confident that this approach would lead to much wider deployment of grid-enhancing technologies, leading to a multitude of benefits including lower-cost electricity and lower congestion charges, and increased renewable energy development and the associated local jobs and revenue," the WATT coalition said in an April 15 statement.

On a call with reporters, Glick noted that FERC and the National Association of Regulatory Utility Commissioners have also initiated a new effort to coordinate on thorny transmission issues such as interregional planning and cost allocation.

One specific area where states and FERC could work better together is on accounting for state and federal energy policies that drive resource decisions, Glick said. The chairman also maintained that more progress is needed on cost allocation.

"States, and justly so, remind us quite frequently that we do need to build out a lot of transmission, but we also need to make sure that the costs that are incurred are incurred prudently," Glick said. He declined to give further specifics on the joint effort, citing ongoing deliberations with NARUC.

"But I'm looking forward to more than just a discussion session," Glick added. "I think we have to have a lot of work to do, and I'm hoping we can actually do more than just sit around a table and talk but actually try to work towards our common goals and come up with some joint proposals."