Unpacking Recent FERC Orders on Transmission Rate Incentives: A Download for Developers

Foley Hoag LLP - Energy & Climate Counsel

Recently, the Federal Energy Regulatory Commission (“FERC” or the “Commission”) has issued two Orders regarding transmission projects’ requests for transmission rate incentives. The pair of rulings, each of which includes a concurrence penned by Commissioner Mark Christie, hint at just how favorably FERC will regard transmission developers’ efforts to ratchet up returns on equity (“ROE”) and allocate costs to load—and where they’ll draw the line.

Between late December 2023 and early February 2024, FERC granted petitions for declaratory orders filed on behalf of two transmission projects now under development on the East Coast. One project, Propel NY, plans to install a number of underground 345kV and 138kV lines that will bolster transfer capacity between Long Island, the Bronx, and Westchester County, New York; the other, Mid-Atlantic Offshore Development (“MAOD”), will develop a substation capable of collecting 4,800 MW of offshore wind power and injecting it into the east-central New Jersey bulk power grid. Both projects were designed in response to a single state’s offshore wind development public policy requirement (New York’s and New Jersey’s, respectively), and both projects will be turned over to the regional grid operator upon completion.

The good news for transmission developers: FERC granted, outright or conditionally, all of the rate incentives sought by both projects, suggesting that the Commissioners are happy to continue relying on mechanisms that boost project ROE to incentivize transmission development. Propel NY was awarded a 100% Abandoned Plant Incentive and a 100% Construction-Work-In-Progress Incentive, as well as a 75-basis-point Risk Adder and 50-basis-point Regional Transmission Organization (“RTO”) Participation Adder. (The 75-basis-point Risk Adder, while less than the 150-basis-point sweetener that Propel NY was seeking, is the largest FERC has ever awarded.) MAOD received a 100% Regulatory Asset Incentive and a 100% Abandoned Plant Incentive, as well as a 50-basis-point RTO Participation adder.

The mixed news: Not all states to whom project costs are allocated will be happy with FERC’s willingness to award RTO Participation Adders to developers, especially where it seems the project is already required to submit to the regional grid operator’s control upon completion. This is the case (as the New York Public Service Commission has protested) for the Propel NY project, because it was procured by NYISO and therefore must be turned over to the ISO by the terms of the procurement. In its December 2023 Order, FERC opined that awarding the Adder to Propel NY was appropriate to incent NY Transco, the project developer, to maintain its NYISO membership. NYPSC has now requested rehearing on the question. The collection of the RTO participation adder by companies required to be members of an RTO is likely to continue to cause controversy, and we expect consumer advocates and some state commissions will continue to protest RTO adder requests like this one.

More mixed news: The Commission preliminarily approved Propel NY’s 10.7% base ROE, but referred the matter to settlement procedures on grounds that NYPSC had raised credible questions about the developer’s calculation methodology—even though the number NYPSC arrived at was 10.5%, just 0.2% lower.

And finally, a word from Commissioner Christie. As we noted above, a single state’s efforts to develop offshore wind power (rather than an RTO/ISO planning process) drove the need for each project. And, per project developers’ filings, the costs of each project will be allocated to load only within the state whose policy created that need. While Commissioner Christie signed onto both Orders discussed here, he also wrote concurrences to each Order making clear his view: the law and FERC precedent prohibit cost allocation arrangements that would spread costs of public policy projects to customers outside of the states calling for the projects. Any such arrangement, in Christie’s words, would be “unjust and unreasonable under the FPA – not to mention just grossly unfair.”

As one of only three Commissioners seated for the foreseeable future, Commissioner Christie’s stance could set the standard for how FERC will regard developers’ proposals for cost allocation schemes for the time being, including in the forthcoming Final Rule on transmission planning and cost allocation under FERC Docket No. RM21-17. 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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