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Commissioner John R. Norris Statement
November 15, 2012
Docket No. RM11-26-000
Item Nos. E-3

Promoting Transmission Investment Through Pricing Reform

“It has been two years since I first raised concerns with the Commission’s transmission rate incentives policies in a separate statement in PATH.1 Since that time, I’ve spent many hours in talks with my staff, Commission staff, my fellow Commissioners, and many stakeholders grappling with this issue. I’ve also had countless discussions of transmission incentives as I’ve traveled around the country, from discussions with concerned state regulators at NARUC meetings to discussions with the financial community on Wall Street. There are a number of strong and diverse opinions on our transmission incentives policies, and we’ve heard them all and tried to take them into account in crafting this Policy Statement.

“It is clear to me that we continue to need significant transmission infrastructure in this country. Not only must we replace aging transmission infrastructure, but we also need new transmission infrastructure to reduce costly congestion, support competitive markets, and tap into our nation’s very rich renewable resource areas.

“I was in Nashville yesterday at an incredible meeting. I found myself surprised to be sitting with a group of utilities and businesses in the Southeast who face virtually no Renewable Portfolio Standards (RPS) or other government clean energy mandates, but are still looking for ways to get access to clean energy. They are doing it purely on the basis of economics and fuel diversity, and it’s clear to them that transmission is key if they are to bring on the most efficiently produced and priced renewable energy to expand and diversify their fuel mix.

“So what motivated Congress to direct this Commission to provide transmission incentives is as clear today as it was in 2005. But, how we do that goes to the heart of our responsibility. Sure, we can get more infrastructure built if we just throw a lot of money at it. But, our broader responsibility starts with ensuring fairness, or as our statutory directive tasks us, ensuring just and reasonable rates.

“As I indicated in my statement in the PATH case, when determining whether to grant transmission rate incentives, and at what level, it is a struggle to find the right balance, and to provide a clear rationale for why a particular incentive was awarded to an individual project. Finding the sufficient levels of return and risk mitigation to attract adequate investment levels while protecting consumers from overpaying for essential power supply is a constant balancing act.

“Today’s Policy Statement represents that balancing act. It is also an example of the value of each commissioner bringing different viewpoints to the table and working together to find solutions that are in balance. I doubt any one party will see everything he or she wanted in today’s Policy Statement. However, I believe that by working together we provide a better understanding of the purpose and objectives we seek to achieve with the various rate incentive tools that exist.

“It is clear that going forward, we will place a great deal of emphasis on the available ratemaking incentives that reduce risk for a project. At the same time, we will raise the bar for applicants to demonstrate why incentive return on equity (ROE) adders are necessary on top of the base ROE (which already accounts for risk) and the risk-reducing incentives. We also provide better guidance on the types of projects that are likely to warrant an incentive ROE adderin the future. The Policy Statement highlights three important categories of projects that we believe, based on our experience, are likely to face risks and challenges that may justify an incentive ROE:

    (1)  Projects that relieve chronic grid congestion, providing demonstrable benefits to consumers;

    (2)  Projects that provide access to location-constrained resources, such as our nation’s wealth of renewable resources, that previously had no or limited access to markets; and

    (3)  Projects that build the grid of the future, rather than replicating the grid of the past, by incorporating new advanced technologies that allow more efficient utilization and integration of resources.

“I would also note that I was greatly encouraged by the discussion earlier this week at the NARUC Annual Meeting. The sessions there showed the great promise of distributed generation, and the importance of considering non-transmission alternatives and demand-side management on a level playing field alongside new transmission infrastructure.

“Even with these exciting developments, however, transmission remains the core infrastructure needed to support a reliable, efficient electricity system, and to unlock the renewable resources that will provide fuel diversity and clean energy at the most efficient price for consumers. Through this Policy Statement, along with Order No. 1000, our Proposed Policy Statement on Merchant Transmission, and our other efforts, the Commission is making progress in strengthening that core infrastructure for the future.”


    1Potomac-Appalachian Transmission Highline, L.L.C., 133 FERC ¶ 61,152 (2010), Norris, concurring.