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Members of the Federal Energy Regulatory Commission agree on the need for better transmission efficiency and a build out of high voltage lines . But the five commissioners strongly disagree on incentives for utilities that participate in independent and regional transmission organizations, which are responsible for grid modernizations.

To protect ratepayers, FERC proposed April 15 on a 3-2 vote that utilities that are members of a transmission organization may get incentives for no more than three years. The subsidy currently has no time limit.

According to staff, a shorter time frame provides an incentive to join transmission organizations, “particularly given the substantial benefits of Transmission Organization membership to participating utilities,” without overburdening ratepayers. Staff estimates that the change would create annual customer savings of $350 million.

The proposed rulemaking also would keep the incentive's return on equity at 50 basis points, rejecting the 100-basis point adder proposed last month.

Commissioner Mark Christie pointed out that the purpose of utility regulation is to protect consumers from being exploited by market power brokers. An above-market return on equity adder fails to do that, he said.

“We should implement the specific directive Congress gave us: to reward the decision to join an RTO–instead of continuing to hand out money with no additional benefits,” FERC Chair Rick Glick said.

Commissioners James Danly and Neil Chatterjee vehemently disagreed. Chatterjee said the proposal is “clearly inconsistent with the statute providing incentives to utilities to join transmission organizations,” insisting it bolstered competition that benefits consumers.

Danly said he assumes that the different statutory interpretations will ultimately be determined by the courts.

In addition to Glick and Christie’s support for the proposal, Commissioner Allison Clement also voted to limit incentives to utilities who are transmission organization participants.

The California Independent System Operator said it was reviewing the new proposal.

Comments on the proposed incentive changes will be accepted for 30 days.

PacifiCorp faces $42 M fine for transmission clearance violations

FERC will slap a $42 million penalty on PacifiCorp for not having the required distance between its high voltage lines and trees. Commission staff assert that the company operating in California and other western states was “generally aware of incorrect clearances on its bulk electric system since at least 2007, when FERC’s reliability standards became mandatory, but failed to specifically identify all of the clearance problems and remedy them in a timely manner.”

The clearance inadequacy had been found to have caused several fires, including one in Utah in 2012 that killed one person and burned 47,000 acres in the state.

Chatterjee questioned the unprecedented amount of the penalty. He said his fellow commissioners should factor in that the company spent more than $127 million on surveys of its transmission system in August 2016.

Proposal to integrate state climate prices

The commission also took the unprecedented step of proposing how it may fold state carbon pricing programs into wholesale market rules under section 205 of the Federal Power Act. Currently, 12 states have carbon pricing programs.

Chatterjee welcomed the bipartisan vote on possible carbon pricing integration.

Danly also supported the proposal because it was “aspirational only.”

It is too early to know if California’s carbon cap-and-trade program would be eligible. The Commission will determine in a section 205 proceeding under the Power Act “whether the proposed rules in any particular filing do, in fact, fall under the Commission’s jurisdiction,” FERC spokesperson Craig Cano said.

The Commissioners also voted to penalize the bankrupt dam operator in Michigan $15 million for safety failures that led to massive flooding when three dams breached last May. That forced the evacuation of 10,000 people and huge damage to public and private property.

“Public safety is a top priority at these facilities, and we will do whatever we can to protect communities,” Glick said.

The commission also agreed to put itself behind victims involved in the bankruptcy of Boyes Hydro who are seeking damages for the dam breaks. The Commission noted that the company failed to respond to the allegations in its order to show cause issued last December.

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Federal Regulators Take Steps to Lower Utility Incentives, Integrate State Carbon Pricing

Elizabeth McCarthy

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