Commissioner Neil Chatterjee Statement
April 15, 2021
Docket No. IN21-6-000
I strongly oppose today’s supplemental NOPR. It mischaracterizes the plain language of the Federal Power Act (FPA) in order to strip utilities of the Transmission Organization Incentive, even though the utility RTO/ISO membership has led to substantial consumer benefits and is vital to the energy transition and the development of much-needed transmission in the RTO/ISO regions.
The Supplemental NOPR Proposal Fails to Reasonably Implement the Statute
FPA section 219(c) requires that the Commission “provide for incentives to each transmitting utility or electric utility that joins a Transmission Organization.”[1] Nowhere in the statute is the Commission directed to provide incentives only to each utility that newly joined a Transmission Organization, or to those that voluntarily joined a Transmission Organization. Indeed, by advancing these arbitrary restrictions,[2] the supplemental NOPR proposal will eviscerate the Transmission Organization Incentive and is therefore inconsistent with the statute.[3]
In Order No. 679, the Commission correctly explained that the “basis for the [Transmission Organization Incentive] is a recognition of the benefits that flow from membership in such organizations.”[4] The Commission reasoned that it would be unduly discriminatory for the Commission to consider the benefits of membership in determining the appropriate ROE for new members but not for similarly situated entities that are already members.[5] In Order No. 679-A, the Commission found that the best way to ensure benefits to as many consumers as possible “is to provide an incentive that is widely available to member utilities of Transmission Organizations.”[6] The Commission determined that the Transmission Organization Incentive is “entirely consistent” with FPA section 219’s purpose, which is to establish incentives “that benefit consumers by ensuring reliability and reducing the cost of delivered power.”[7] Finally, the Commission explained that “limit[ing] the incentive to only utilities yet to join Transmission Organizations offers no inducement to stay in these organizations for members with the option to withdraw, and hence risks reducing Transmission Organization membership and its attendant benefits to consumers.”[8]
The supplemental NOPR does not even attempt to grapple with any of the Commission’s well-reasoned prior holdings. Rather, the majority merely offers a conclusory statement that a new interpretation is reasonable.[9] The majority provides no basis for its subtle but meaningful contortion of the statue, which, as noted above, requires that the Commission “provide for incentives to each . . . utility that joins a Transmission Organization” and does not – as the majority would have you believe – require the Commission “to provide an incentive for joining rather than remaining in a Transmission Organization.”[10]
The Supplemental NOPR Will Slow the Energy Transition and Stymie Needed Investments
I could understand the majority’s proposal to eviscerate the Transmission Organization Incentive if doing so accomplished an important or even articulable policy objective. But the proposal is—bafflingly—contrary to the current Administration’s federal clean energy goals.[11] To meet such aggressive goals, we will need both robust organized markets and an enormous amount of investment in transmission,[12] and we will need to put Americans to work building the grid of the future.[13] If this Commission hopes to run fast toward these energy transition goals, it must not shoot itself in the foot by eliminating the Transmission Organization Incentive.
RTOs and ISOs, while imperfect, have been enormously successful in generating billions of dollars of annual benefits to consumers. MISO estimates that it produces between $3.1 and $3.9 billion of annual net economic benefits in the form of “improved reliability, compliance, more efficient use of existing assets and reduced need for additional assets.”[14] PJM estimates its annual savings at between $3.2 and $4.0 billion in the form of more efficient regional transmission planning, lower aggregate generation reserve requirements, encouraging replacement of less-efficient generators, and reducing electricity production costs.[15] SPP estimates that savings from its markets and transmission planning services provide more than $2.2 billion of annual benefits.[16] According to National Grid, ISO-NE is expected to produce savings of more than $600 million per year.[17] Based on these four estimates, one could reasonably conclude that these RTOs/ISOs alone produce more than $10 billion of annual benefits for consumers.[18] Though the estimated $400 million annual cost of the Transmission Organization Incentive may appear large without any context,[19] it is quite literally pennies on the dollar when compared to the more than $10 billion of annual benefits to ratepayers generated from RTO/ISO membership. The majority has lost sight of the forest for the trees. I share the concern expressed by WIRES that any course-reversal “on maintaining the availability of the RTO/ISO Participation Incentive . . . would undermine the Commission’s decades-long policy of supporting the development and expansion of RTOs/ISOs and the corresponding benefits to consumers they provide.”[20]
Moreover, as we move towards a clean energy future, the importance of RTOs/ISOs will only continue to grow.[21] As just one example, large energy consumer Google, which recently articulated a goal of running on carbon-free energy everywhere by 2030,[22] put it this way:
The key to managing [renewable] intermittency at low cost has been the ability to use large, interconnected, highly integrated electricity grids and associated liquid wholesale markets. As renewable penetrations grow, it will be critical to shift from balkanized, isolated electricity markets to regional, interconnected grids and markets. This will create larger balancing areas to better manage intermittency, increase price efficiency through greater liquidity and market transparency, and allow renewables to be delivered from distant but resource-rich geographies to the load centers where they are needed.[23]
Real world experience bears this out. We already have seen SPP successfully manage record levels of wind generation, which would not be possible if its footprint were broken into dozens of balancing areas.[24] SPP’s CEO Barbara Sugg identified four factors behind SPP’s successful integration of renewable energy: (1) SPP’s large consolidated balancing authority takes advantage of its scale to match the many sellers of renewable power with a broad footprint of buyers; (2) SPP sits at the crossroads of the nation’s highest wind and solar resources; (3) SPP has a robust transmission infrastructure that allows renewable energy to be sent long distances; and (4) SPP enjoys a robust day-ahead and real-time energy market.[25] SPP’s impressive integration of wind paints a clear picture: RTOs provide a platform for a successful energy transition. That platform can only remain viable if existing utility members remain in RTOs.
I whole-heartedly agree with the current chorus of calls for more effective regional and interregional transmission planning, including more expansive competitive bidding processes and interregional planning.[26] But we cannot ignore that the RTO/ISO regions are the leaders and catalysts on these fronts. The Commission staff’s 2020 State of the Markets Report noted that “four transmission planning regions . . . awarded to developers or requested proposals for new transmission projects as part of a competitive bidding process.”[27] All four of these transmission planning regions are RTO/ISO regions – PJM, NYISO, SPP, and ISO-NE.[28] Commission staff also identified two promising developments pertaining to inter-regional transmission planning: (1) MISO’s board approved an interregional project previously approved by PJM; and (2) MISO and SPP announced a joint project to find comprehensive, cost-effective projects along the MISO-SPP seam. Again, these developments are driven by RTO/ISOs. Now is not the time to undercut them.
Finally, the existing Transmission Organization Incentive modestly increases the overall ROE awarded to utilities in RTO/ISO regions. Preserving or increasing the incentive would better position such utilities to compete for capital, thereby enhancing large-scale transmission investment.[29] Stable incentives create much-needed “regulatory certainty for investors, planners, and transmission owners to inform decisions regarding long-term planning and the deployment of capital.”[30] Lowering overall ROEs, as the majority proposes to do here, may push investment away from transmission projects and towards other sectors of the economy or to lower risk projects.
If the Commission is truly committed to advancing policies to build out our transmission system to deliver clean, reliable, and affordable energy services, it should not support today’s proposal. A far better approach would be to move forward with a comprehensive suite of reforms to provide incentives for the transmission projects that provide the most benefits to consumers.[31] Unfortunately, with today’s order, the Commission has taken its eye off the ball.
For these reasons, I respectfully dissent.
[1] 16 U.S.C. § 824s(c).
[2] For example, the supplemental NOPR does not explain how the majority arrived at a three-year incentive or even attempt to justify why three years is the appropriate duration for utilities to receive the incentive.
[3] Because so few utilities have joined a Transmission Organization in the last three years, today’s proposal would eliminate the Transmission Organization Incentive for the vast majority of existing RTO members.
[4] Promoting Transmission Investment through Pricing Reform, Order No. 679, 71 FR 43293, 116 FERC ¶ 61,057, at P 331 (2006), order on reh’g, Order No. 679-A, 72 FR 1152, 117 FERC ¶ 61,345 (2006), order on reh’g 119 FERC ¶ 61,062 (2007).
[5] Id.
[6] Order No. 679-A, 117 FERC ¶ 61,345 at P 86.
[7] Id.
[8] Id. By design, the Supplemental NOPR proposal attempts to limit the incentive to utilities yet to join Transmission Organizations. See supra note 3.
[9] Supplemental NOPR at P 8 (offering nothing more than a blanket suggestion that the existing Transmission Organization Incentive “may not balance utility and ratepayer interests”). In addition to ignoring the increasing burdens placed on member utilities and the fact that the billions of dollars of benefits the RTOs/ISOs provide through utility membership accrue to consumers – not to the utilities, as the majority would have you believe – the majority completely disregards WIRES’ clear warning that, with a proposal like today’s, “there is a very real risk that RTO/ISO membership could remain static (at best) or shrink (at worst).” WIRES Comments at 14.
[10] See Supplemental NOPR at P 6.
[11] See, e.g., Executive Order 14008, 86 FR 7619 (Jan. 27, 2021), available at https://www.whitehouse.gov/briefing-room/presidential-actions/2021/01/27/executive-order-on-tackling-the-climate-crisis-at-home-and-abroad (setting forth the goal of “put[ting] the United States on a path to achieve net-zero emissions, economy-wide, by no later than 2050”); see also, e.g., Ronald Brownstein, Infrastructure plan: How Biden's zero-carbon revolution would broaden the energy map, CNN (Apr. 6, 2021), https://www.msn.com/en-us/news/us/infrastructure-plan-how-biden-s-zero-carbon-revolution-would-broaden-the-energy-map/ar-BB1fkZ5q (explaining that President Biden’s American Jobs Plan includes “a provision that would require every state to generate all of its electricity by 2035 from fuels that do not produce any of the carbon emissions linked to global climate change”).
[12] See, e.g., Eric Wolff, Down to the wire: Biden’s green goals face a power grid reckoning, Politico (Apr. 8, 2021), https://www.politico.com/news/2021/04/08/biden-green-goals-power-grid-480446 (“President Joe Biden’s dream of a climate-friendly electric grid hangs on a slender wire: his administration’s ability to speed the construction of thousands of miles of power lines.”).
[13] See Fact Sheet, The American Jobs Plan, https://www.whitehouse.gov/briefing-room/statements-releases/2021/03/31/fact-sheet-the-american-jobs-plan/ (setting forth the goal to “put hundreds of thousands of people to work” on projects to include “laying thousands of miles of transmission lines”).
[14] See MISO, 2020 MISO Value Proposition, (Feb. 2021), https://cdn.misoenergy.org/2020%20Value%20Propostion%20Exec%20Summary521884.pdf.
[15] See PJM, PJM Value Proposition, (Jul. 2019), https://www.pjm.com/-/media/about-pjm/pjm-value-proposition.ashx.
[16] See SPP, 14-to-1 The Value of Trust, at 3 (May 2019), https://spp.org/documents/58916/14-to-1%20value%20of%20trust%2020190524%20web.pdf.
[17] National Grid Comments at 8 (citing Supplemental Answering Testimony of Kenneth B. Bowes on Behalf of the NETOs, Docket No. EL16-64, Exh. No. NET-02600 at 9 and accompanying Exhibit No. NET-02601 (July 31, 2017)).
[18] This estimate is likely understated because it does not include the benefits to consumers from CAISO or NYISO. In addition, according to Renewable Energy Buyers Alliance (REBA), which advocates for “instituting organized wholesale markets in all regions of the country,” the creation of an RTO in the Southeast would generate an estimated $19.2 billion in annual savings. REBA, Organized Wholesale Markets, https://rebuyers.org/programs/market-policy-innovations/organized-markets/.
[19] Supplemental NOPR at P 9 & n.21.
[20] WIRES Reply Comments at 5.
[21] See, e.g., REBA, Organized Wholesale Markets, https://rebuyers.org/programs/market-policy-innovations/organized-markets/ (“[O]rganized wholesale markets produce billions in customer savings annually, they are critical to efficient decarbonization and clean energy integration, and increase customers’ ability to drive the clean energy transition.”).
[22] See Sundar Pichai, Our Third Decade of Climate Action: Realizing a Carbon-free Future (Sept. 14, 2020), https://blog.google/outreach-initiatives/sustainability/our-third-decade-climate-action-realizing-carbon-free-future.
[23] Google, Achieving Our 100% Renewable Energy Purchasing Goal and Going Beyond (Dec. 2016), https://www.gstatic.com/gumdrop/sustainability/achieving-100-renewable-energy-purchasing-goal.pdf. See also Advanced Energy Buyers Group, Organized Wholesale Markets and Advanced Energy Procurement (Jan. 2021), https://info.aee.net/hubfs/AEE_AEBG%20-%20WholesaleMkts_1.19.21.pdf (“[E]xpanding and improving [organized wholesale] markets would open new opportunities for large customers to meet their own emission reduction and renewable energy goals while also accelerating the broader energy transition.”).
[24] On March 29, 2021, SPP broke four renewable records, with wind penetration surpassing 80% for the first time in SPP history and reaching a renewable penetration record of 84.2%. Kassia Micek, SPP breaks four renewable, wind records causing power prices to dip negative, S&P Global (Mar. 30, 2021) https://www.spglobal.com/platts/en/market-insights/latest-news/electric-power/033021-spp-breaks-four-renewable-wind-records-causing-power-prices-to-dip-negative.
[25] American Council for Renewable Energy, How Southwest Power Pool Sets Renewable Records Daily (Apr. 8, 2021), https://acore.org/how-southwest-power-pool-sets-renewable-records-daily/.
[26] See, e.g., Americans for a Clean Energy Grid, Planning for the Future, FERC’s Opportunity to Spur More Cost-effective Transmission Infrastructure, at 8 (Jan. 2021), (“As we look to the future, much more regional and inter-regional power exchange will be needed for national energy security, reliability, resilience, cost-effectiveness, and economic competitiveness.”).
[27] Commission Staff, State of the Markets 2020, (Mar. 2021), https://www.ferc.gov/sites/default/files/2021-03/State-of-the-Markets-2020-Report.pdf.
[28] Id. MISO is engaging with stakeholders to develop its Long-Range Transmission Planning initiative to holistically assess the region’s future transmission needs in light of expected resource evolution and electrification. See MISO, Long-Range Transmission Plan Roadmap, (Mar. 2021), https://cdn.misoenergy.org/20210317%20PAC%20Item%2003a%20Long%20Range%20Transmission%20Plan%20Initial%20Roadmap531009.pdf. I am not aware of any similar holistic region-wide initiative in the non-RTO/ISO planning regions.
[29] See London Economic, Economic Considerations in the Matter of Transmission Incentives, (July 2020), https://wiresgroup.com/wp-content/uploads/2020/07/LEI-Expert-Paper-on-FERC-NOPR_Electric-Transmission-Incentives-July-1-2020.pdf.
[30] WIRES Reply Comments at 4-5.
[31] March NOPR, 170 FERC ¶ 61,204, at PP 3-11. I support moving forward with a final rule that adopts the March NOPR proposal, albeit with some narrow adjustments. For example, rather than providing Economic Benefits Incentives to transmission projects based on their benefit-to-cost ratios, I would instead provide such incentives based on net benefits in an effort to ensure that the incentives flow to the most beneficial – likely regional and inter-regional – transmission projects.