[Federal Register Volume 85, Number 64 (Thursday, April 2, 2020)]
[Proposed Rules]
[Pages 18784-18810]
[FR Doc No: 2020-06321]

Vol. 85

Thursday,

No. 64

April 2, 2020

Part V

Department of Energy

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Federal Energy Regulatory Commission

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18 CFR Part 35

Electric Transmission Incentives Policy Under Section 219 of the
Federal Power Act; Proposed Rule

Federal Register / Vol. 85 , No. 64 / Thursday, April 2, 2020 /
Proposed Rules

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Part 35

[Docket No. RM20-10-000]

Electric Transmission Incentives Policy Under Section 219 of the
Federal Power Act

AGENCY: Federal Energy Regulatory Commission, DOE.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Federal Energy Regulatory Commission proposes to revise
its existing regulations that implemented section 219 of the Federal
Power Act in light of the changes in transmission development and
planning over the last few years.

DATES: Comments are due July 1, 2020.

ADDRESSES: Comments, identified by docket number, may be filed
electronically at http://www.ferc.gov in acceptable native applications
and print-to-PDF, but not in scanned or picture format. For those
unable to file electronically, comments may be filed by mail or hand-
delivery to: Federal Energy Regulatory Commission, Secretary of the
Commission, 888 First Street NE, Washington, DC 20426. The Comment
Procedures Section of this document contains more detailed filing
procedures.

FOR FURTHER INFORMATION CONTACT:
David Tobenkin (Technical Information), Office of Energy Policy and
Innovation, Federal Energy Regulatory Commission, 888 First Street NE,
Washington, DC 20426,<PHONE_NUMBER><EMAIL_ADDRESS>Adam Batenhorst (Legal Information), Office of the General Counsel,
Federal Energy Regulatory Commission, 888 First Street NE, Washington,
DC 20426,<PHONE_NUMBER><EMAIL_ADDRESS>Adam Pollock (Technical Information), Office of Energy Market
Regulation, Federal Energy Regulatory Commission, 888 First Street NE,
Washington, DC 20426,<PHONE_NUMBER><EMAIL_ADDRESS>
SUPPLEMENTARY INFORMATION:

Table of Contents

                                                          Paragraph Nos.

I. Introduction.........................................               1
II. Background..........................................              12
    A. FPA Section 219..................................              12
    B. Order Nos. 679 and 679-A.........................              15
    C. Order No. 1000...................................              18
    D. 2012 Policy Statement............................              20
    E. 2019 Notice of Inquiry...........................              22
    F. Grid-Enhancing Technologies Workshop.............              23
III. Need for Reform....................................              24
IV. Discussion..........................................              34
    A. Shift From Risks and Challenges to Benefits......              34
    B. Incentive ROE Reforms............................              41
        1. ROE Incentives...............................              42
            a. ROE Incentive for Economic Benefits......              42
            b. Adoption of a Benefit-to-Cost Test.......              44
            c. Benefit-to-Cost Measurements.............              48
            d. Establishing a Benefit-to-Cost Threshold               56
             for Economic Incentives....................
        2. Reliability Benefits.........................              63
            a. Reliability Incentive Proposal...........              65
            b. Proposed Showing and Commission Analysis.              74
    C. Ensuring Reasonableness of ROE...................              76
    D. Non-ROE Incentives...............................              82
    E. Incentives Available to Transcos.................              85
        1. Background and Experience to Date............              85
        2. Proposed Revisions to Transco Incentives.....              91
    F. Incentives for RTO Participation.................              92
        1. Background and Experience to Date............              92
        2. RTO-Participation Incentive Proposal.........              97
    G. Incentives for Transmission Technologies.........             100
        1. Background and Experience to Date............             100
        2. Proposed Incentives..........................             101
            a. Transmission Technology Incentive........             105
            b. Deployment Incentive.....................             108
        3. Eligibility and Requirements.................             111
            a. Transmission Technology Statement........             111
            b. Pilot Programs...........................             112
            c. Reporting Requirement....................             113
    H. Disclosure of Anticipated Incentives.............             114
    I. Program Management...............................             115
        1. FERC Form 730................................             115
            a. Form 730 Proposed Format Changes.........             117
        2. Scope of Public Utility Reporting Obligation.             122
        3. Benefits Reporting in Form 730...............             124
V. Information Collection Statement.....................             127
VI. Environmental Analysis..............................             139
VII. Regulatory Flexibility Act.........................             140
VIII. Comment Procedures................................             146
IX. Document Availability...............................             150

I. Introduction

    1. In this notice of proposed rulemaking (NOPR), the Federal Energy
Regulatory Commission (Commission) proposes to revise its existing
transmission incentives policy and corresponding regulations
(Transmission Incentives Regulations) \1\ in light of changes in
transmission development and planning in the last few years. After the
enactment of the Energy Policy Act of 2005,\2\ which added section 219
to the Federal Power Act (FPA),\3\ the Commission promulgated Order No.
679 \4\ pursuant to FPA section 219.
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    \1\ 18 CFR 35.35.
    \2\ Energy Policy Act of 2005, Public Law 109-58, sec. 1241, 119
Stat. 594 (2005).
    \3\ 16 U.S.C. 824s.
    \4\ Promoting Transmission Investment through Pricing Reform,
Order No. 679, 116 FERC ] 61,057, order on reh'g, Order No. 679-A,
117 FERC ] 61,345 (2006), order on reh'g 119 FERC ] 61,062 (2007).
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    2. After Order No. 679, the Commission last reviewed its
transmission incentives policy in its 2012 Policy Statement.\5\ Even
since then, the energy industry has undergone a transformation. The
landscape for planning, developing, operating, and maintaining
transmission infrastructure has changed considerably. Those changes
include an evolution in the resource mix and an increase in the number
of new resources seeking transmission service, shifts in load patterns,
the impact of the implementation of the Commission's major rulemaking
on transmission planning and cost allocation (Order No. 1000),\6\ and
new challenges to maintaining the reliability of transmission
infrastructure. As a result of these changes and the Commission's
greater experience evaluating transmission incentive applications made
pursuant to Order No. 679 and their relationship to the objectives of
FPA section 219, we now propose to revise our transmission incentives
policy to more closely align it with the statutory language of FPA
section 219.
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    \5\ Promoting Transmission Investment through Pricing Reform,
141 FERC ] 61,129 (2012) (2012 Policy Statement).
    \6\ Transmission Planning and Cost Allocation by Transmission
Owning and Operating Public Utilities, Order No. 1000, 136 FERC ]
61,051 (2011), order on reh'g, Order No. 1000-A, 139 FERC ] 61,132,
order on reh'g and clarification, Order No. 1000-B, 141 FERC ]
61,044 (2012), aff'd sub nom. S.C. Pub. Serv. Auth. v. FERC, 762
F.3d 41 (D.C. Cir. 2014).
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    3. First, we propose to depart from the risks and challenges
approach used to evaluate requests for transmission incentives adopted
in Order No. 679 and instead focus on granting incentives based on the
benefits to consumers of transmission infrastructure investment
identified by Congress in FPA section 219: Ensuring reliability and
reducing the cost of delivered power by reducing transmission
congestion. As described in the next two paragraphs, a
    4. Second, we propose to offer public utilities an ROE incentive
for transmission projects that provide sufficient economic benefits, as
measured by the degree to which such benefits exceed related
transmission project costs. Specifically, we propose to offer 50 basis
points of ROE incentives for transmission projects that meet an
economic benefit-to-cost ratio in the top 75th percentile of
transmission projects examined over a sample period. We propose to
offer 50 additional basis points of ROE incentives for transmission
projects that demonstrate ex-post cost savings that fall in the 90th
percentile of transmission projects studied over the same sample
period, as measured at the end of construction.
    5. Third, we propose to offer public utilities an ROE incentive for
transmission projects that provide significant and demonstrable
reliability benefits. Specifically, we propose to offer up to 50 basis
points of ROE incentives for transmission projects that can demonstrate
potential reliability benefits by providing quantitative analysis,
where possible, as well as qualitative analysis. Cybersecurity is an
important part of reliability and we will address cybersecurity
incentives independently in a separate, future proceeding.
    6. Fourth, we propose to modify the incentive allowing public
utilities to recover 100 percent of prudently incurred costs of
transmission facilities that are cancelled or abandoned due to factors
that are beyond the control of the applicant (Abandoned Plant
Incentive). Specifically, we propose to allow public utilities with
transmission projects that are selected in a regional transmission
planning process for the purposes of cost allocation to recover 100
percent of abandoned plant costs from the date that such transmission
projects are selected in a regional transmission planning process for
the purposes of cost allocation, rather than from the date the
Commission issues an order granting such recovery.
    7. Fifth, we propose to revise our regulations to eliminate the ROE
incentive and related acquisition adjustment incentive available to
stand-alone transmission companies (Transcos).\7\
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    \7\ The Commission defines a Transco as a stand-alone
transmission company that has been approved by the Commission and
that sells transmission service at wholesale and/or on an unbundled
retail basis, regardless of whether it is affiliated with another
public utility. 18 CFR 35.35(b)(1); Order No. 679, 116 FERC ] 61,057
at P 201.
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    8. Sixth, consistent with the statutory language in FPA section
219, we propose to modify the ROE incentive available to transmitting
utilities or electric utilities that join and/or continue to be a
member of an Independent System Operator (ISO), Regional Transmission
Organization (RTO), or other Commission approved Transmission
Organization \8\ (RTO-Participation Incentive) so that it is available
regardless of whether the transmitting utility's or electric utility's
participation in the ISO, RTO, or Transmission Organization is
voluntary. The proposed RTO-Participation Incentive will be a uniform
100-basis-point increase to ROE for transmitting utilities that turn
over their wholesale facilities to the Transmission Organization.
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    \8\ A Transmission Organization is defined as an RTO, ISO,
independent transmission provider, or other organization finally
approved by the Commission for the operation of transmission
facilities. 16 U.S.C. 796(29); 18 CFR 35.35(b)(2). The Commission is
proposing to move the definition of Transmission Organization from
Sec.  35.35(b)(2) of its regulations to Sec.  35.35(f) of the
revised Transmission Incentives Regulations.
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    9. Seventh, we propose to offer public utilities incentives for
transmission technologies that, as deployed in certain circumstances,
enhance reliability, efficiency, and capacity, and improve the
operation of new or existing transmission facilities. We propose that
these technologies will be eligible for both: (1) A stand-alone, 100-
basis-point ROE incentive on the costs of the specified transmission
technology project; and (2) specialized regulatory asset treatment.
Further, we propose to give pilot programs a rebuttable presumption of
eligibility for these incentives.
    10. Eighth, we propose to establish a 250-basis-point cap on total
ROE incentives granted to a public utility in place of the current
policy of limiting ROE incentives to the public utility's zone of
reasonableness.
    11. Ninth, we propose to reform the information collected from
transmission incentive applicants in FERC-730, Report of Transmission
Investment Activity (Form 730), by obtaining this information on a
project-by-project basis and to expand some of the information
collected.\9\ We also propose to update the data reporting process.
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    \9\ Concurrent with this NOPR, the Commission is issuing an
instant final rule clarifying the filing instructions for the
current Form 730 at the request of the Office of Management and
Budget (OMB). Reporting of Transmission Investments, Order No. 869,
170 FERC ] 61,219 (2020). Those changes are reflected into the Form
730 as proposed in this NOPR.

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II. Background

A. FPA Section 219

    12. Prior to 2005, the Commission considered requests for certain
transmission incentives pursuant to FPA section 205.\10\ In 2005,
Congress amended the FPA to, as relevant here, add a new section
219.\11\ FPA section 219(a) directed the Commission to promulgate a
rule providing incentive-based rates for electric transmission for the
purpose of benefitting consumers by ensuring reliability and reducing
the cost of delivered power by reducing transmission congestion. FPA
section 219(b) included a number of specific directives in the required
rulemaking, including that the rule shall:
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    \10\ 16 U.S.C. 824d; see also Me. Pub. Utils. Comm'n v. FERC,
454 F.3d 278, 287 (D.C. Cir. 2006).
    \11\ Energy Policy Act of 2005, Pub. L. 109-58, sec. 1241.
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     Promote reliable and economically efficient transmission
and generation of electricity by promoting capital investment in the
enlargement, improvement, maintenance, and operation of all facilities
for the transmission of electric energy in interstate commerce,
regardless of the ownership of the facilities; \12\
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    \12\ 16 U.S.C. 824s(b)(1).
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     Provide a return on equity that attracts new investment in
transmission facilities, including related transmission technologies;
\13\
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    \13\ Id. at 824s(b)(2).
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     Encourage deployment of transmission technologies and
other measures to increase the capacity and efficiency of existing
transmission facilities and improve the operation of the facilities;
\14\ and
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    \14\ Id. at 824s(b)(3).
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     Allow the recovery of all prudently incurred costs
necessary to comply with mandatory reliability standards issued
pursuant to FPA section 215,\15\ and all prudently incurred costs
related to transmission infrastructure development pursuant to FPA
section 216.\16\
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    \15\ FPA section 215 addresses the Commission's role in ensuring
electric reliability of the bulk power system. Id. at 824o.
    \16\ Id. at 824s(b)(4). FPA section 216 addresses designation of
and siting of transmission facilities within National Interest
Electric Transmission Corridors. Id. at 824p.
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    13. FPA section 219(c) states that the Commission shall, to the
extent within its jurisdiction, provide for incentives to each
transmitting utility or electric utility that joins a Transmission
Organization and ensure that any costs recoverable pursuant to this
subsection may be recovered by such transmitting utility or electric
utility through the transmission rates charged by such transmitting
utility or electric utility or through the transmission rates charged
by the Transmission Organization that provides transmission service to
such transmitting utility or electric utility.\17\
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    \17\ Id. at 824s(c).
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    14. Finally, FPA section 219(d) provides that rates approved
pursuant to a rulemaking adopted pursuant to section 219 are subject to
the requirements in FPA sections 205 and 206 \18\ that all rates,
charges, terms, and conditions be just and reasonable and not unduly
discriminatory or preferential.
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    \18\ Id. at 824e.
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B. Order Nos. 679 and 679-A

    15. On July 20, 2006, the Commission issued Order No. 679, adding
Sec.  35.35 to the Commission's regulations to implement transmission
incentives, and thereby fulfilling the rulemaking requirement in FPA
section 219(a). The Commission explained that, to receive an incentive,
an applicant must satisfy the statutory threshold set forth in FPA
section 219(a) by demonstrating that the transmission facilities for
which it seeks incentives either ensure reliability or reduce the cost
of delivered power by reducing transmission congestion. If the
applicant satisfies that threshold, it must then demonstrate that there
is a nexus between the incentive sought and the investment being made.
The Commission stated that it would apply the FPA section 219(a)
threshold and the nexus test on a case-by-case basis.\19\
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    \19\ Order No. 679, 116 FERC ] 61,057 at PP 22, 24.
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    16. The Commission also described a variety of incentives that
would potentially be available, including:
     Increases above the base ROE: (1) To compensate for the
risks and challenges of a specific transmission project (ROE incentive
for risks and challenges); (2) for forming a Transco (Transco ROE
Incentive); (3) for joining a RTO or ISO (RTO-Participation Incentive);
or (4) for use of an advanced transmission technology;
     The Abandoned Plant Incentive, which is, as explained
above, the ability to request 100 percent of prudently incurred costs
associated with abandoned transmission projects to be included in
transmission rates if such abandonment is outside the applicant's
control;
     Inclusion of 100 percent of construction work in progress
in rate base (CWIP Incentive);
     Hypothetical capital structures;
     Accelerated depreciation for rate recovery; and
     Recovery of prudently incurred pre-commercial operations
costs as an expense or through a regulatory asset (Regulatory Asset
Incentive).
    17. On December 22, 2006, in Order No. 679-A, the Commission
granted rehearing in part and denied rehearing in part of Order No.
679.\20\ The Commission largely affirmed the conclusions discussed in
the previous paragraphs while refining certain other aspects of Order
No. 679. In its subsequent discussion of the nexus test, the Commission
reaffirmed that the ``most compelling'' candidates for incentives are
``new projects that present special risks or challenges, not routine
investments made in the ordinary course of expanding the system to
provide safe and reliable transmission service.'' \21\
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    \20\ Order No. 679-A, 117 FERC ] 61,345 at P 1.
    \21\ Id. PP 23, 60.
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C. Order No. 1000

    18. In 2011, the Commission issued Order No. 1000, which instituted
certain transmission planning and cost allocation reforms for public
utility transmission providers.\22\ Notably, Order No. 1000 requires:
(1) That each public utility transmission provider participate in a
regional transmission planning process that produces a regional
transmission plan; (2) that local and regional transmission planning
processes must provide an opportunity to identify and evaluate
transmission needs driven by public policy requirements established by
state or federal laws or regulations; (3) improved coordination between
neighboring transmission planning regions for new interregional
transmission facilities; and (4) the removal from Commission-approved
tariffs and agreements of a federal right of first refusal.\23\
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    \22\ Order No. 1000, 136 FERC ] 61,051.
    \23\ See Order No. 1000-A, 139 FERC ] 61,132 at P 1.
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    19. Order No. 1000 also requires that each public utility
transmission provider must participate in a regional transmission
planning process that has: (1) A regional cost allocation method for
the cost of new transmission facilities selected in a regional
transmission plan for purposes of cost allocation; and (2) an
interregional cost allocation method for the cost of new transmission
facilities that are located in two neighboring transmission planning
regions and are jointly evaluated by the two regions in the
interregional transmission coordination process.\24\

Although Order No. 1000 does not directly address the Commission's
obligations under FPA section 219, the aforementioned reforms have had
certain implications for how regional transmission facilities are
planned and developed.
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    \24\ Order No. 1000, 136 FERC ] 61,051 at P 9.
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D. 2012 Policy Statement

    20. On November 15, 2012, the Commission issued a policy statement
to provide additional guidance regarding its evaluation of applications
for transmission incentives under FPA section 219 and Order No. 679. In
particular, the Commission reframed the nexus test for applicants
seeking the ROE incentive for risks and challenges and eliminated the
stand-alone advanced transmission technology incentive.\25\ The
Commission stated that it would expect an applicant seeking an ROE
incentive for risks and challenges to demonstrate that: (1) The
proposed transmission project faces risks and challenges that were not
either already accounted for in the applicant's base ROE or addressed
through non-ROE incentives; (2) it is taking appropriate steps and
using appropriate mechanisms to minimize its risk during transmission
project development; (3) alternatives to the transmission project had
been, or would be, considered in either a relevant transmission
planning process or another appropriate forum; and (4) it commits to
limiting the application of the ROE incentive to a cost estimate.\26\
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    \25\ The Commission stated that, with respect to possible ROE
incentives, it would prospectively consider advanced technologies
only as part of an application for an ROE adder for risks and
challenges. 2012 Policy Statement, 141 FERC ] 61,129 at P 23.
    \26\ Id. PP 20-28.
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    21. The Commission provided several examples of categories of
transmission projects that might satisfy the above-noted ``risks and
challenges'' expectation, including transmission projects that would:
(1) Relieve chronic or severe grid congestion that has had demonstrated
cost impacts to consumers; (2) unlock location-constrained generation
resources that previously had limited or no access to the wholesale
electricity markets; or (3) apply new technologies to facilitate more
efficient and reliable usage and operation of existing or new
facilities.\27\
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    \27\ Id. P 21. The Commission noted these examples of types of
transmission projects that might qualify for an ROE adder for risks
and challenges was not an exhaustive list. Id. P 22.
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E. 2019 Notice of Inquiry

    22. On March 21, 2019, the Commission issued a Notice of Inquiry
seeking comment on the scope and implementation of its electric
transmission incentives regulations and policy.\28\ The 2019 Notice of
Inquiry presented numerous questions regarding the Commission's
approach to, and objectives of, its incentives policy; the mechanics
and implementation of an incentives policy; and metrics for evaluating
the effectiveness of incentives. The Commission received 67 initial
comments and 47 reply comments.
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    \28\ Inquiry Regarding the Commission's Electric Transmission
Incentives Policy, 84 FR 11759 (Mar. 28, 2019), 166 FERC 61,208
(2019) (2019 Notice of Inquiry).
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F. Grid-Enhancing Technologies Workshop

    23. On November 5 and 6, 2019, Commission staff led a workshop on
grid-enhancing technologies (Grid-Enhancing Technologies Workshop).\29\
Grid-Enhancing Technologies Workshop speakers identified several grid-
enhancing technologies, including power flow control, transmission
topology optimization, advanced line rating management, and storage as
transmission. Speakers also discussed several methods to incentivize
the deployment and implementation of grid-enhancing technologies,
including a shared-savings approach. The Commission also issued a post-
workshop notice seeking comment and received 19 comments.
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    \29\ FERC, Grid-Enhancing Technologies, Notice of Workshop,
Docket No. AD19-19-000 (Sept. 9, 2019).
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III. Need for Reform

    24. The reforms proposed to the Commission's transmission
incentives policy will both help to reflect recent changes in the
industry and transmission planning and more closely align with the
statutory language of FPA section 219.
    25. As part of ensuring that we continue to meet our statutory
obligations, the Commission periodically reviews its existing policies
and regulations. The Commission established its transmission incentives
policy in Order No. 679 and clarified that policy six years later in
the 2012 Policy Statement. In the nearly eight years since our last
formal review of the Commission's transmission incentives policy, the
landscape for planning, developing, operating, and maintaining
transmission infrastructure has changed considerably. These changes
include an evolution in the resource mix, an increase in the number of
new resources seeking transmission service, shifts in load patterns,
the Commission's implementation of Order No. 1000's reforms, and new
challenges to maintaining the reliability of transmission
infrastructure.
    26. While transmission infrastructure development has remained
generally robust at an aggregate level, the types of transmission
projects that are needed, and the use of rate treatments to incent
them, must evolve to reflect the changes in market fundamentals.
    27. First, the nation's resource mix has evolved since the
Commission's issuance of Order No. 679 in 2006, with rising use of
natural gas and renewable resources and declining use of coal. In 2006,
coal, natural gas, and nuclear made up nearly 88 percent of net
electric generation in the United States, with coal contributing nearly
50 percent of total generation and natural gas contributing 20 percent
of total generation, respectively.\30\ By 2018, coal, natural gas, and
nuclear still accounted for 82 percent of net electric generation; 27
percent of total generation was from coal and 36 percent from natural
gas, respectively. Solar and wind increased from a collective one
percent in 2006 to eight percent in 2018. These shifts create a need
for more transmission infrastructure to bring generation to load. A
survey of Edison Electric Institute (EEI) members shows that the need
to integrate renewables and natural gas is one of the main drivers for
expansion of the transmission system, as noted by U.S. Energy
Information Administration (EIA).\31\
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    \30\ In 2006, coal represented 49 percent, natural gas 20
percent, and nuclear power 19 percent of net electric generation in
the United States. U.S. Energy Info. Admin., Total Energy Annual
Energy Review, Electricity Net Generation: Total (All Sectors), at 1
(January 2020), https://www.eia.gov/totalenergy/data/monthly/pdf/sec7_5.pdf.
    \31\ U.S. Energy Info. Admin., Today in Energy (Feb. 9, 2018),
https://www.eia.gov/todayinenergy/detail.php?id=34892.
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    28. In addition to the changing mix of resources used to generate
electricity, more types of resources are now participating in
Commission-jurisdictional markets. Industry innovation and market
reforms, demand-side resources, electric storage, distributed energy
resources, and new technological innovations provide transmission
operators with new opportunities as well as new challenges. There is a
need for existing and new transmission facilities to help facilitate
integration of these resources and a need to incent development and
enhancement of transmission facilities so that they are effective in
doing so.
    29. Changes in load patterns are also driving new types of
transmission investment. Despite low overall demand

growth, electrification in industries such as transportation, heating,
and agriculture are expected to contribute to peak load growth,
requiring additional transmission investment to meet those needs.\32\
Other shifts in load patterns are triggering targeted transmission
investment, such as by Public Service Enterprise Group to meet urban
area growth in Newark and Jersey City, New Jersey, or by Dominion
Energy to meet the increased load needs of data centers in northern
Virginia.\33\ Another example of transmission being built to meet these
various needs is the Energy Gateway Project, which EIA notes is being
built to meet new demand patterns and provide greater access to new
resources.\34\ The Commission's incentives policy must be effective in
incenting transmission projects that reflect existing, and can adapt
rapidly to future, shifts in load growth patterns.
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    \32\ See Brattle Group, The Coming Electrification of the North
American Economy, at 7-12, 16-21 (Feb. 28, 2019), https://wiresgroup.com/wp-content/uploads/2019/03/Electrification_BrattleReport_WIRES_FINAL_03062019.pdf.
    \33\ Edison Electric Institute, Smarter Energy Infrastructure:
The Critical Role and Value of Electric Transmission, at 7 (Mar.
2019), https://www.eei.org/issuesandpolicy/transmission/Documents/2018%20Smarter%20Energy%20Infrastructure%20The%20Critical%20Role%20and%20Value%20of%20Electric%20Transmission.pdf.
    \34\ U.S. Energy Information Administration, Today in Energy
(Feb. 9, 2018), https://www.eia.gov/todayinenergy/detail.php?id=34892.
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    30. Additionally, transmission planning has evolved significantly.
The 2012 Policy Statement was issued less than one month after
transmission planning regions submitted their first round of Order No.
1000 regional compliance filings. All transmission planning regions
have now conducted at least two iterations of their regional
transmission planning process, with some having conducted as many as
seven.\35\ As part of such processes, the six RTOs/ISOs use
sophisticated software modeling to identify the relative benefits and
costs of proposed new transmission projects premised upon transmission
projects' economic benefits. There is now an opportunity for the
Commission to leverage the RTOs/ISOs' efforts to better target
incentives at transmission projects that demonstrate sufficient
economic benefits, as measured by the degree to which such benefits
exceed related transmission project costs.
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    \35\ See California Independent System Operator, Inc.,
Transmission Planning for a Reliable, Economic and Open Grid, http://www.caiso.com/planning/Pages/TransmissionPlanning/Default.aspx;
WestConnect, Regional Planning, http://regplanning.westconnect.com/regional_planning.htm.
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    31. FPA section 219(a) requires that the Commission provide
incentive-based rates for electric transmission for the purpose of
benefitting consumers by ensuring reliability and reducing the cost of
delivered power by reducing transmission congestion. While we are
encouraged by the investment in transmission infrastructure to date,
our evaluation of the Commission's incentives policy indicates that
additional reform may be necessary to continue to satisfy our
obligations under FPA section 219 in this new transmission planning
landscape.
    32. Further, in reviewing our incentives policy under Order No.
679, we have determined that our current policy may not fully
accomplish the purposes of FPA section 219. Congress in FPA section 219
directed that the Commission shall establish, by rule, incentive-based
(including performance-based) rate treatments for the transmission of
electric energy in interstate commerce by public utilities for the
purpose of benefitting consumers by ensuring reliability and reducing
the cost of delivered power by reducing transmission congestion.\36\ As
discussed in more detail in the following section, we are proposing to
revise our transmission incentives policy in order to more closely
align with the statutory language and purpose of FPA section 219. By
ensuring that our incentives policy better aligns with our statutory
requirements, we aim to set clear expectations for how the Commission
will analyze future applications for incentives treatment, as well as
increased transparency for the regulated industry.
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    \36\ 16 U.S.C. 824s(a) (emphasis added).
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    33. This analysis also should increase certainty for developers;
better align incentives awarded with transmission project benefits and
costs; increase the precision and transparency with which transmission
project benefits are considered by the Commission; and increase the
ability, over time, of the Commission to determine whether incentives
are effective in spurring development of transmission projects with
desirable benefits.

IV. Discussion

A. Shift From Risks and Challenges to Benefits

    34. We propose to revise Sec.  35.35 of the Transmission Incentives
Regulations to incorporate a benefits test to receive transmission
incentives and to remove the nexus test from Sec.  35.35(c) of the
currently effective regulations. FPA section 219(a) explicitly
recognizes the benefits of transmission projects by directing that the
Commission shall establish, by rule, incentive-based (including
performance-based) rate treatments for the transmission of electric
energy in interstate commerce by public utilities for the purpose of
benefitting consumers by ensuring reliability and reducing the cost of
delivered power by reducing transmission congestion.\37\
---------------------------------------------------------------------------

    \37\ Id.
---------------------------------------------------------------------------

    35. Order Nos. 679 and 679-A implemented the provisions of FPA
section 219 and established a ``nexus test,'' which required that
applicants demonstrate a connection between the total package of
incentives sought and the proposed investment, in light of the risks
and challenges facing a transmission project seeking incentives under
FPA section 219.\38\ However, FPA section 219 neither includes this
standard nor requires the Commission to find that the transmission
project would otherwise not occur without the incentive.\39\ The
inclusion of this standard has focused applicants and the Commission on
the risks and challenges of a transmission project rather than the
purpose and language of FPA section 219, which is to benefit consumers
by ensuring reliability and reducing the costs of delivered power by
reducing transmission congestion, and ensuring that rates remain just
and reasonable.
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    \38\ The applicant must demonstrate that the transmission
facilities for which it seeks incentives either ensure reliability
or reduce the cost of delivered power by reducing transmission
congestion consistent the requirements of section 219, that the
total package of incentives is tailored to address the risks and
challenges faced by the applicant in undertaking the project, and
that the resulting rates are just and reasonable. 18 CFR 35.35(d);
see also Order No. 679, 116 FERC ] 61,057 at P 76.
    \39\ See Order No. 679, 116 FERC ] 61,057 at P 53 (stating that
FPA section 219 provides a new directive to the Commission to permit
greater incentives and does not on its face require an individual
showing of need by incentive applicants); see also Conn. Dept. of
Pub. Util. Control v. FERC, 593 F.3d 30, 34 (D.C. Cir. 2010)
(``nothing in the law or FERC's stated purpose required FERC to
adduce evidence . . . `that the adder would produce new transmission
investment'''). When the Commission explained why it was not
adopting a ``but for'' test in Order No. 679, it noted that the rule
was ``based on a clear directive from Congress that does not require
an applicant to show that it would not build the facilities but for
the incentives.'' Order No. 679, 116 FERC ] 61,057 at P 48.
---------------------------------------------------------------------------

    36. Based on experience to date with the application of Order No.
679, and in recognition of the changing landscape in the energy
industry, we believe that refocusing our incentives program to more
closely align with the statutory directive of FPA section 219 will
allow the Commission to better fulfill its mandate. We therefore
propose to

depart from the ``nexus test'' framework of Order No. 679, and instead
focus our decision to grant incentives on the benefits to consumers of
transmission infrastructure investment identified by Congress: ensuring
reliability and reducing the cost of delivered power by reducing
transmission congestion. Accordingly, we propose to revise Sec.
35.35(c) of the proposed Transmission Incentives Regulations to remove
the nexus test and to implement a benefits test.
    37. As described in detail below, with respect to ROE incentives
based upon transmission projects' economic and reliability benefits, we
propose separate analyses to implement the revised Sec.  35.35(c) of
the Transmission Incentives Regulations, wherein an applicant must
demonstrate that the incentives it seeks meet a specified benefit-to-
costs threshold for an economic benefits showing or provide a
significant and demonstrable reliability enhancement for a reliability
benefits showing, with each of these showings determining eligibility
for distinct ROE incentives. Consistent with Congressional directive in
FPA section 219(d), all ROE incentives must be just and reasonable.
    38. Although we propose a shift in the Commission's transmission
incentive analysis to concentrate on the benefits presented by
transmission investment, we propose to retain non-ROE incentives,
including the abandoned plant incentive, CWIP Incentive, hypothetical
capital structure, accelerated depreciation for rate recovery, and
regulatory asset treatment.\40\ These non-ROE incentives remain vital
in facilitating the investment in and the development of transmission
projects as they remove regulatory barriers and other impediments to
investment. These incentives will continue to remain available to all
transmission projects that meet the Commission's rebuttable
presumptions for transmission projects that result from fair and open
regional transmission planning, receive construction approval from an
appropriate state commission or state siting authority, or otherwise
demonstrate that they are needed to ensure reliability or reduce the
cost of delivered power by reducing transmission congestion.\41\ We
propose only incremental reforms to some of these non-ROE
incentives.\42\ We continue to see transmission project-specific ROE
incentives, for which we will require additional demonstration of
benefits, as a supplement to these non-ROE incentives, as discussed
further below.
---------------------------------------------------------------------------

    \40\ 2012 Policy Statement, 141 FERC ] 61,129 at PP 11-14.
    \41\ See proposed 18 CFR 35.35(e).
    \42\ See section II.D.
---------------------------------------------------------------------------

    39. We do not propose to require applicants for a transmission
project-specific ROE incentive based upon transmission projects'
economic or reliability benefits to demonstrate that base ROE or non-
ROE incentives are insufficient to adequately address the needs of
these transmission projects before seeking an ROE incentive, as is
currently required for the ROE incentive for risks and challenges,
which we propose to eliminate as we shift to a benefits-based approach
for ROE incentives.
    40. Furthermore, we propose no changes to the procedural
flexibility offered to applicants seeking incentives, including
applicants' ability to seek expedited declaratory orders on incentive
proposals before submitting a filing for approval under FPA section 205
for inclusion of the incentives in rates.

B. Incentive ROE Reforms

    41. FPA section 219 directed the Commission to provide a framework
for granting incentives based on the benefits to consumers of
transmission infrastructure investment that ensured reliability and
reduced the cost of delivered power by reducing transmission
congestion. We continue to believe that it is necessary to offer
incentives under FPA section 219 to ensure an ROE that attracts new
investment in transmission facilities and continues investment in
beneficial transmission facilities.\43\ Accordingly, we propose to
offer a series of transmission ROE incentives designed to ensure that
returns on equity attract investment in transmission infrastructure
that has high economic benefits to consumers through congestion relief
or that enhances reliability.
---------------------------------------------------------------------------

    \43\ 16 U.S.C. 824s(b)(2).
---------------------------------------------------------------------------

1. ROE Incentives
a. ROE Incentive for Economic Benefits
    42. FPA section 219(a) directs the Commission to establish
incentive-based rate treatments to benefit consumers by reducing the
cost of delivered power by reducing transmission congestion, section
219(b)(1) directs the Commission to promote reliable and economically
efficient transmission, and section 219(b)(2) directs the Commission to
provide an ROE that attracts new investment in transmission
facilities.\44\ Accordingly, we propose to revise Sec.  35.35(d) of our
regulations to allow applicants to seek ROE incentives for transmission
projects that provide sufficient economic benefits, as measured by the
degree to which such benefits exceed related transmission project
costs, as described further below.
---------------------------------------------------------------------------

    \44\ Id. at 824s(a)-(b)(2).
---------------------------------------------------------------------------

    43. We propose to grant ROE incentives to economic transmission
projects based on economic benefit-to-cost tests, including a 50-basis-
point ROE incentive for transmission projects that meet an ex-ante
benefit-to-cost threshold, described below, and 50 additional basis
points for transmission projects that demonstrate on an ex-post basis
that they are able to satisfy a higher benefit-to-cost threshold when
constructed. Regional \45\ or local \46\ transmission projects may be
eligible for this incentive.
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    \45\ A regional transmission facility is a transmission facility
located entirely in one region. Order No. 1000, 136 FERC ] 61,051 at
n. 374.
    \46\ A local transmission facility is a transmission facility
located solely within a public utility transmission provider's
retail distribution service territory or footprint that is not
selected in the regional transmission plan for purposes of cost
allocation. Id. at P 63.
---------------------------------------------------------------------------

b. Adoption of a Benefit-to-Cost Test
    44. We propose to adopt a benefit-to-cost ratio to determine the
eligibility of economic transmission projects for ROE incentives to
attract new investment in transmission facilities in order to implement
our proposed revisions to Sec.  35.35(d) of the revised Transmission
Incentives Regulations. We believe that this approach is consistent
with both a benefits-based approach and industry practice, as explained
in greater detail below. Several RTOs/ISOs request that the Commission
not impose a benefits-based incentives approach that would duplicate or
interfere with their transmission planning efforts, cause inefficient
use of RTO/ISO staff time, or engender contention and potential
litigation.\47\ With these concerns in mind, we propose an approach to
economic benefits-based incentives that we believe is relatively
simple, transparent, and yet is efficient in relying upon RTOs/ISOs'
analyses of the economic benefits of transmission projects.
---------------------------------------------------------------------------

    \47\ California Independent System Operator Corporation
Comments, Docket No. PL19-3-000, at 10 (filed June 26, 2019); Grid-
Enhancing Technologies Workshop Transcript Day Two, Docket No. AD19-
19-0000, at 286, 288, 296, 316, 325, 327, 334 (filed Jan. 6, 2020).
---------------------------------------------------------------------------

    45. In Order No. 679, the Commission stated that it would not
require applicants for incentive-based rate

treatments to provide benefit-to-cost analyses.\48\ Explaining why it
was not requiring such showings, the Commission listed as
considerations: (1) The Commission's authority to consider non-cost
factors in awarding incentives; (2) that Congress's enactment of FPA
section 219 reflected its determination that incentives generally can
spur transmission investment which will, in turn, provide the benefits
of a robust transmission system; and (3) the Commission's intent to
consider the justness and reasonableness of any proposal for incentive
rate treatment in individual proceedings.\49\
---------------------------------------------------------------------------

    \48\ Order No. 679, 116 FERC ] 61,057 at P 65.
    \49\ Id.
---------------------------------------------------------------------------

    46. However, we believe that shifting from a risks and challenges
based paradigm to a benefits-based paradigm, where incentives reward
the most beneficial rather than most challenging transmission projects,
supports using benefit-to-cost ratios to award economic incentives.
Many transmission planning regions, including RTOs/ISOs, already
identify beneficial transmission solutions and the heightened benefit-
to-cost ratio thresholds we adopt below will ensure that we are
providing incentives to highly beneficial transmission projects.
Specifically, in many RTOs/ISOs, competing economic transmission
projects are evaluated through a comparison of transmission projects'
economic benefits with their costs, generating benefit-to-cost ratios
that evaluate transmission projects by their net benefits.\50\ In
addition, many applications requesting ROE incentives for risks and
challenges already include some analysis of benefits and costs.\51\
---------------------------------------------------------------------------

    \50\ See, e.g., MISO, MTEP18 Transmission Expansion Plan, at 100
(Sep. 18, 2018), https://cdn.misoenergy.org/MTEP18%20Full%20Report264900.pdf (presenting a comparison of
benefit-to-cost ratios for potential transmission project for MISO's
Dakotas/Minnesota region); PJM Interconnection, LLC, Transmission
Expansion Advisory Committee Market Efficiency Update, at 7 (Dec. 3,
2015), https://www.pjm.com/-/media/committees-groups/committees/teac/20151203/20151203-market-efficiency-update.ashx (describing the
reliability pricing model benefit component of the benefit/cost
ratio).
    \51\ For example, New York Independent System Operator, Inc.
(NYISO) found that the Empire Project proposed by NEET New York is
expected to result in: (1) Production cost savings on the NYISO
system of approximately $274 million to $338 million over a 20-year
period, adjusted on a present value basis to 2017 dollars; and (2)
demand congestion change savings on the NYISO system of $582 to
$1.184 billion over a 20-year period, adjusted on a present value
basis to 2017 dollars. NextEra Energy Transmission N.Y., Inc., 162
FERC ] 61,196, at P 21 (2018).
---------------------------------------------------------------------------

    47. The widespread use of benefit-to-cost ratios for evaluating
economic transmission projects in RTO/ISO transmission planning regions
demonstrates the reasonableness of employing benefit-to-cost ratios to
determine whether transmission projects merit ROE incentives premised
upon economic benefits. The use of benefit-to-cost ratios for awarding
ROE incentives will allow the Commission to set a clear expectation as
to the level of benefits relative to costs required to receive an ROE
incentive. We request comment on the merits of the use of benefit-to-
cost ratios to determine eligibility of transmission projects,
regardless of the type of transmission project, for ROE incentives
based on their economic benefits.
c. Benefit-to-Cost Measurements
    48. In calculating the economic benefits of a transmission project
for which a public utility is requesting ROE incentives, we propose to
limit measurement of economic benefits to adjusted production costs or
similar measures of congestion reduction or certain other quantifiable
benefits that are verifiable and not duplicative. With respect to
transmission projects' economic benefits, transmission planning regions
typically evaluate the economic efficiency of transmission projects
through production cost modeling. This analysis seeks to minimize total
system cost by evaluating the security constrained unit commitment and
economic dispatch of the system over a given time horizon within a
transmission planning region. A transmission project, whether regional
or local, is classified as ``economic'' if it reduces the total system
cost by an amount that justifies its cost, usually by establishing net
positive benefits, and sometimes surpassing a defined benefit-to-cost
threshold. In RTO/ISO regions, all regional transmission projects
selected in a regional transmission plan for purposes of cost
allocation, and sometimes other transmission projects premised
primarily on their economic benefits, are evaluated through production
cost or similar modeling.\52\ Some of the non-RTO/ISO regions'
transmission planning processes also include production cost
modeling.\53\
---------------------------------------------------------------------------

    \52\ See, e.g., California Independent System Operator, Inc.,
2018-2019 Transmission Plan, at sec. 4.4 (Mar. 29, 2019);
Midcontinent Independent System Operator, Inc., MISO Adjusted
Production Cost Calculation White Paper (Feb. 1, 2019); PJM Manual
14B, PJM Regional Transmission Planning Process (Aug. 28, 2019); New
York Independent System Operator, Inc., Manual 35, Economic Planning
Process Manual-Congestion Assessment and Resource Integration
Studies, sec. 2.5 (Feb. 2016).
    \53\ See, e.g., Northern Tier Transmission Group, 2018-2019
Biennial Transmission Plan, at 10 (Dec. 31, 2019); WestConnect
Business Practice Manual, section <IP_ADDRESS>.
---------------------------------------------------------------------------

    49. In addition, many regions supplement adjusted production cost
models with other economic benefit metrics. MISO, for example, has also
proposed to examine reliability transmission project costs avoided by
the construction of an economic transmission project, as well as the
impacts on congestion of a settlement between MISO and Southwest Power
Pool, Inc. (SPP),\54\ and already considers the relative degree to
which an economic transmission project will solve a congestion problem.
In this example, MISO might choose an economic transmission project
that completely resolves congestion in a particular location on the
system over a transmission project with a higher benefit-to-cost ratio
that relieves only a portion of the congestion.\55\ Similarly, PJM's
process allows for a holistic assessment of benefits and considers
factors, such as constructability analysis, effects of transmission
project combinations, and changes in load energy payments, in its
overall consideration of transmission projects.\56\ California
Independent System Operator Corporation (CAISO) assesses on a case-by-
case basis other economic opportunities that are not necessarily driven
by congestion. Such economic opportunities may include local capacity
benefits (e.g., reducing the requirement for local generation capacity
due to limited transmission capacity into an area).\57\ In NYISO, the
economic transmission planning process uses production cost savings as
the primary metric in its initial phase; subsequently, NYISO considers
additional metrics on a case-by-case basis, depending on the most
useful ones for each economic planning cycle.\58\ Commenters in other

proceedings have also identified other potential economic benefits.\59\
---------------------------------------------------------------------------

    \54\ Midcontinent Indep. Sys. Operator, Inc., Filing, Docket No.
ER20-857-000, at 4 (Jan. 21, 2020)).
    \55\ See MISO, MTEP 2018: Transmission Expansion Plan, at 100
(declining to move a transmission solution forward in the study
cycle because, ``[a]lthough it shows a good benefit-to-cost ratio,
it leaves a significant amount of the congestion unaddressed and the
upgrade will most likely not be enough given the future wind
development in the Dakotas and Minnesota border area'').
    \56\ PJM, Market Efficiency Study Process and RTEP Window
Project Evaluation Training, at 21 (Oct. 16, 2018); PJM, 2017
Regional Transmission Expansion Plan: Book 3 Studies and Results, at
69 (Feb. 28, 2018).
    \57\ Other benefits include renewable integration benefit,
resource adequacy benefit, and transmission loss benefits. CAISO,
Transmission Economic Assessment Methodology, sec. 2.5 Additional
Benefits of Economically Driven Transmission Expansion (Nov. 2,
2017).
    \58\ These other metrics include: Estimates of reductions in
losses, locational based marginal pricing load costs, generator
payments, installed capacity costs, ancillary services costs,
emission costs, and transmission congestion contract payments.
NYISO, NYISO Tariffs, NYISO OATT, att. Y Economic Planning Process,
sec. <IP_ADDRESS>.5 (11.0.0).
    \59\ See Johannes Pfeifenberger and Judy Chang, Comments, Docket
No. AD16-18-000 (filed Oct. 3, 2016) (attaching multiple reports on
transmission planning and the benefits of the transmission system).
---------------------------------------------------------------------------

    50. While most RTOs/ISOs employ other economic benefit metrics in
addition to adjusted production cost, we propose to limit our analysis
of economic benefits to adjusted production cost, similar measures of
congestion reduction, and certain other quantifiable benefits that are
verifiable and not duplicative.\60\ Although excluding factors beyond
adjusted production cost or similar measures of congestion reduction
and quantifiable economic benefits will reduce the comprehensiveness of
the measurement of economic benefits, we believe that this is a
reasonable tradeoff in the interest of an economic benefits test that
is transparent and relatively straightforward for applicants to prepare
and for the Commission to analyze. We also propose to provide a
rebuttable presumption that economic benefits measured in benefit-to-
cost ratios derived by RTOs/ISOs for transmission projects within their
footprints should be included in the determination of an applicant's
transmission project's benefits. Additionally, we propose that the
appropriate benefit-to-cost ratio for purposes of the ex-ante
evaluation is measured at the time the RTO/ISO finalizes its analysis
of potential economic transmission projects within its region.
---------------------------------------------------------------------------

    \60\ These might include (but are not limited to): Types of load
cost savings, capacity benefits, and avoided local transmission
project costs.
---------------------------------------------------------------------------

    51. Although we believe that the use of adjusted production cost,
similar congestion reduction measurements, and other quantifiable
benefits strikes a reasonable balance for the purpose analyzing
economic benefits, we request comment on whether additional types of
economic benefit measures should be considered for purposes of an
economic benefit ROE incentive. We also request comment on existing
methods that are equivalent (or comparable) to adjusted production cost
that might inform the range of benefits measures that could be
utilized.
    52. Although some RTOs/ISOs appear to provide stakeholders access
to the results of their adjusted production cost models, it is unclear
whether all RTOs/ISOs provide public utilities with the results of
their adjusted production cost models, similar congestion reduction
measurements, or other quantifiable benefits as economic benefits
measures, and the resulting benefit-to-cost ratios in a manner that
would allow the developer to use these results to seek an ROE incentive
for economic benefits. For example, some RTOs/ISOs may require
stakeholders to execute a non-disclosure agreement to gain access to
study results. In addition, some RTOs/ISOs conduct multiple economic
simulations for transmission projects, and it is not clear if these
regions perform a single, final adjusted production cost or equivalent
economic analysis that would allow for apples-to-apples comparisons of
transmission projects. Further, some RTOs/ISOs may not conduct studies
of the economic benefits of all transmission projects. We invite
further comment on current RTO/ISO practices with regard to the
dissemination of production cost modeling information and the
derivation of benefit-to-cost ratios and whether these practices could
hamper an applicant from using the RTO/ISO modeling results to seek an
ROE incentive for economic benefits.
    53. In addition, we recognize that public utilities outside of
RTOs/ISOs may face challenges in using their transmission planning
region's existing processes for analyzing the economic benefits of
transmission projects to produce benefit-to-cost analyses for use in an
ROE incentive application. Given non-RTO/ISO regions' lack of
centrally-cleared markets that allow them to determine how a new
transmission facility will change production costs or the price that
load must pay at wholesale for electricity, their economic analyses
vary greatly from those that RTO/ISO transmission planning regions
conduct. Some of the non-RTO/ISO transmission planning regions--
WestConnect, ColumbiaGrid, Northern Tier Transmission Group, and
Florida Reliability Coordinating Council (FRCC)--consider some form of
economic benefits as part of their regional cost allocation methods.
For example, under WestConnect's regional cost allocation method for
regional transmission projects driven by economic considerations,
WestConnect identifies the benefits and beneficiaries of a proposed
regional transmission facility by modeling the potential of that
transmission facility to support more economic, bilateral transactions
between generators and loads in the region.\61\ FRCC's process includes
a cost-benefit ratio calculation for transmission projects in
consideration in its regional transmission plan based on avoided
project cost benefits, alternative project cost benefits, and
transmission line loss benefits.\62\ Whereas, in SERTP, the process
mainly focuses on a power flow analysis, and includes such metrics as
avoided costs of displaced transmission, and thermal and voltage
constraints.\63\ We invite comment on the availability and
accessibility of adjusted production cost and similar economic benefit
measurement data that applicants could use to analyze the economic
benefits of a transmission project for purposes of seeking an ROE
incentive in non-RTO/ISO regions. We also seek comment on any economic
calculations that entities in non-RTO/ISO regions perform in their
transmission planning processes (whether economic calculations from
transmission planning regions or by public utilities), and the extent
to which it might be feasible to calculate benefit-to-cost ratios for
any transmission projects for which these transmission projects'
developers might consider seeking an economic benefit incentive.
---------------------------------------------------------------------------

    \61\ See WestConnect, WestConnect Regional Planning Process
Business Practice Manual, sec. <IP_ADDRESS>.
    \62\ See FRCC regional transmission planning process, sec.
7.2.2.
    \63\ See, for example, SERTP 2019 Transmission Planning
Analyses, Part II.
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    54. Applicants, either in RTOs/ISOs or non-RTO/ISO transmission
planning regions, seeking such incentives may produce their own
benefit-to-cost study of economic benefits for their transmission
projects for consideration by the Commission. Such studies may be
prepared by applicants, third party consultants or, if offered, by
transmission planning regions. These studies should include
quantitative and qualitative description and analysis, including
description of any cost or benefit analysis for the transmission
project by transmission planning regions or the applicant in
transmission planning regions, and detailed analysis and supporting
testimony for the applicant's calculation of the transmission project's
economic benefits, including major model assumptions, costs, and the
resulting benefit-to-cost ratio. However, such non-RTO/ISO-performed
studies will not receive a presumption that they are appropriately
included in a determination of economic benefits. We invite comment on
what supporting information and analysis an applicant's benefit-to-cost
study should include.
    55. More generally, we also seek comment on how measurement of
economic benefits can be distinguished from measurement of other types
of benefits considered for purposes of

other incentives so that double counting of benefits does not occur.
d. Establishing a Benefit-to-Cost Threshold for Economic Incentives
    56. We believe that transmission projects should offer
substantially more economic net benefits than the average transmission
project to be eligible for an incentive premised upon economic
benefits. We also believe that it is reasonable to analyze transmission
projects by size based on the cost of the transmission project. Thus,
we propose to use $25 million, adjusted annually for inflation,\64\ as
a reasonable dividing line between small system modifications and
significant transmission facility expansions. We find that these two
categories merit separate benefit-to-cost thresholds. We propose to
implement procedures that will provide for inputting and calculation of
new national benefit and cost data and the resulting benefit-to-cost
threshold between small system modifications and significant
transmission facility additions at five-year intervals.
---------------------------------------------------------------------------

    \64\ We also propose a $25 million threshold for incentives for
pilot programs discussed in section IV.G.3.b.
---------------------------------------------------------------------------

    57. As a first step toward developing national benefit-to-cost
ratios, we examined 41 economic transmission projects selected in the
regional transmission plans of MISO,\65\ CAISO,\66\ and PJM \67\ from
2013 through 2019.\68\ Of these transmission projects, 11 cost more
than $25 million and, for these transmission projects, the average
benefit-to-cost ratio was 3.63. To be eligible for an ex-ante economic
benefits ROE incentive, we propose that transmission projects must
demonstrate net benefit ratios consistent with the 75th percentile of
all transmission projects more than $25 million in these regional plans
over the study period, which was 3.98. We note that consideration of
benefit-to-cost ratios in other transmission planning regions would
help to further support the thresholds for an economic benefits ROE
incentive and we propose to expand the derivation of percentile
thresholds through examination of benefit-to-cost ratios in other
regions, if available, in any final rule. We seek comment on combining
different RTO/ISO benefits measurement methodologies as part of an
effort to derive a national benefit-to-cost threshold and the merits
and downsides to doing so. Further, we encourage additional RTOs/ISOs
to provide benefit-to-cost information to make these threshold figures
more robust. Finally, we request comment on whether the benefit-to-cost
ratio threshold calculations for the transmission projects should
include the costs of ROE incentives.
---------------------------------------------------------------------------

    \65\ MISO transmission projects included projects selected based
upon their economic benefits as market efficiency projects and other
economic projects. Multi-Value Projects were excluded because MISO's
benefit-to-cost ratios do not differentiate between economic,
reliability, and public policy requirement benefits.
    \66\ CAISO transmission projects considered are those coming out
of CAISO's economic planning study of its Transmission Planning
Process.
    \67\ PJM transmission project types studied included those
designated by PJM as Market Efficiency Projects.
    \68\ Specifically, CAISO from 2013-2019; MISO and PJM from 2015-
2019. These analyses, based upon publicly available data, are
available in Appendix A.
---------------------------------------------------------------------------

    58. For transmission projects that cost less than or equal to $25
million, the average benefit-to-cost ratio for the 30 qualifying
transmission projects in MISO, CAISO, and PJM was 26.67, and the ratio
for the 75th percentile transmission project was 33.91, which we
propose to use as the threshold for an ex-ante economic benefit ROE
incentive for these transmission projects.
    59. We also propose to offer an additional 50-basis-point incentive
for economic benefits as measured on an ex-post basis. To be eligible
for an ex-post economic benefits incentive, a transmission project must
exhibit a benefit-to-cost ratio in the top 10 percent of transmission
projects at the time of transmission project completion based on
applying their actual costs to the projected benefits. Like the ex-ante
economic benefit ROE incentive, a successful applicant would start
earning this incentive in the rate year in which the transmission
facility is placed in service. We considered using ex-post benefits
versus projected benefits in this analysis, but concluded that the
burden of determining and measuring such benefits, and the potentially
significant amount of potential changes in transmission project
benefits for reasons outside of the control of developers, makes such
ex-post review inappropriate. By contrast, application of actual cost
information is relatively uncontroversial and straight-forward. For the
study period, the 90th percentile for all transmission projects in the
three regions greater than $25 million would be 5.17, and 77.04 for
transmission projects equal to or less than $25 million.
    60. We believe that providing an opportunity for an additional, ex-
post incentive for an applicant would benefit customers by further
incentivizing transmission project developers to meet a transmission
project's projected benefit-to-cost estimates by completing their
transmission projects at or below projected costs. We seek comment on
whether the Commission should exclude costs resulting from factors
beyond a developer's control from the ex-post analysis for an ex-post
economic benefits ROE incentive. However, regardless of cost overruns,
an applicant would remain eligible for the ex-ante economic benefit ROE
incentive. Given that these ratios are significantly above the average
of transmission projects premised upon economic benefits, we believe
that these incentives are directed to transmission projects that are
more beneficial than the average transmission project.
    61. To further explain the economic benefits ROE incentive,
assuming, for example, that a transmission project has estimated
benefits of $400 million, ex-ante estimated costs of $100 million and
ex-post, final actual costs of $75 million, such a transmission project
could earn up to 50 basis points for demonstrating the 3.98 ex-ante
threshold ($400M/$100M=4.00) and up to an additional 50 basis points
for achieving the 5.17 ex-post threshold ($400M/$75M=5.33) after the
transmission project is completed. We seek comment on this approach
and, more generally, on the manner in which these thresholds are
calculated.
    62. We propose to establish a construct for the determination of
applicable benefit-to-cost thresholds that would also provide for
reevaluation of these thresholds every five years based upon a
reexamination of transmission projects selected in transmission
planning regions based upon their economic benefits. We also propose to
update for inflation the dividing line between small and large
transmission projects for the purpose of determining the respective
thresholds for these transmission projects annually.
2. Reliability Benefits
    63. FPA section 219(a) directs the Commission to establish
incentive-based rate treatments to benefit consumers by ensuring
reliability and FPA section 219(b)(1) directs the Commission to promote
reliable and economically efficient transmission.\69\ Although
reliability is clearly delineated as a benefit to be promoted by
incentives, we are cognizant of our differing but related mandates for
promoting reliability under FPA sections 215 and 219.
---------------------------------------------------------------------------

    \69\ 16 U.S.C. 824s(a)-(b)(1).
---------------------------------------------------------------------------

    64. Pursuant to FPA section 215, the Commission has approved a set
of mandatory reliability standards developed by the North American
Electric Reliability Corporation (NERC).

The NERC reliability standards define the reliability requirements for
the planning and operation of the bulk power system, including
transmission facility planning, emergency preparedness, voltage and
balancing, and interconnection, among others. Transmission projects
required to comply with these standards are assured recovery of all
prudently incurred costs pursuant to FPA section 219(b)(4)(A).\70\ In
accordance with the aim of FPA section 215, the NERC reliability
standards provide for an adequate level of reliability.\71\ In light of
these mandatory reliability standards, and the guaranteed cost recovery
pursuant to FPA section 219(b)(4)(A), additional transmission
incentives are not necessary to maintain an adequate level of
reliability. Nevertheless, as explained below, we believe that a
changing electric grid presents reliability challenges that merit
increased capital investment in transmission facilities. We therefore
propose in Sec.  35.35(d)(1)(iii) of the revised Transmission
Incentives Regulations to provide an ROE incentive for certain
transmission projects that produce significant and demonstrable
reliability benefits above and beyond the requirements of the NERC
reliability standards.
---------------------------------------------------------------------------

    \70\ Id. at 824s(b)(4)(A).
    \71\ Id. at 824o(a)(3).
---------------------------------------------------------------------------

a. Reliability Incentive Proposal
    65. We propose in Sec.  35.35(b)(1)(iii) of the revised
Transmission Incentives Regulations to offer a separate ROE incentive
of up to 50 basis points for transmission projects that provide
significant and demonstrable reliability benefits. At the outset, we
acknowledge that reliability benefits are often more difficult to
quantify than economic benefits. Nevertheless, FPA section 219(a)
directs the Commission to establish incentive-based rate treatments for
the purpose of benefiting consumers by ensuring reliability.
Accordingly, to better align our incentives policy with the goals of
FPA section 219, we propose to adopt an approach that quantitatively
evaluates the reliability benefits of proposed transmission projects
when feasible, but also recognizes the value of qualitative assessments
of enhanced reliability. We plan to offer reliability benefit ROE
incentives for all types of transmission projects within the
Commission's jurisdiction that can demonstrate the showing described
below.
    66. Reliability benefits can take many forms. A transmission
project may provide one exceptional reliability benefit or a portfolio
of several reliability benefits. Each transmission project has unique
attributes, so we propose to evaluate the merits of an application for
a reliability ROE incentive based on the transmission project providing
one or more significant and demonstrable reliability enhancements. The
Commission will evaluate each application on a case-by-case basis.
    67. We propose a nonexclusive set of examples and demonstrations
that could form the basis of a showing of significant and demonstrable
reliability benefits that a transmission project could provide. We note
that, as this is not an exclusive list, there may be transmission
projects with other significant and demonstrable reliability benefits
that warrant incentives. Accordingly, we invite comment on other types
of reliability benefits in addition to those discussed below.
    68. A transmission project may demonstrate reliability benefits in
any number of ways. First, transmission projects that significantly
increase import or export capability between balancing authorities can
provide significant and demonstrable reliability benefits. For example,
increasing import capability can provide access to additional
generation capacity which could be necessary to prevent load shedding
or restore load generation balance in an emergency. In addition,
creating additional transmission capability on frequently constrained
interfaces can reduce the likelihood of a System Operating Limit
exceedance that can damage equipment and disrupt system operations.
    69. Second, transmission projects that result in an Interconnection
Reliability Operating Limit (IROL) being downgraded to a routine System
Operating Limit likely produce significant and demonstrable reliability
benefits. The NERC reliability standards define IROLs as a sub-set of
system operating limits that are more likely to result in severe
cascading, instability, or uncontrolled separation if violated.
Pursuant to the NERC standards, there are no limits on the number of
IROLs an entity can have in its footprint, and, in fact, registered
entities are required to designate new IROLs where applicable criteria
are met. Similarly, transmission projects that are likely to reduce the
frequency and/or duration of IROL exceedances can also provide
significant and demonstrable reliability benefits.
    70. Third, transmission projects that improve the bulk power
system's ability to operate reliably during foreseen and unforeseen
contingencies beyond the NERC transmission planning (TPL) requirements
or other local planning criteria, can provide significant and
demonstrable reliability benefits. For example, an applicant may
demonstrate that its proposed transmission project improves system
stability margins on transfer paths or in generation or load pockets in
its request for a reliability ROE incentive. We propose that an
applicant may demonstrate this type of reliability benefit in a variety
of ways, including by showing reduced loss of load probability, reduced
need for reliability unit commitments, or by reducing unserved energy
under various contingencies.
    71. Fourth, transmission projects that reduce the complexity of the
transmission system by eliminating the need for one or more remedial
action schemes \72\ on the system can provide significant and
demonstrable reliability benefits. We propose that an applicant can
demonstrate that its proposed transmission project ensures reliability
by the elimination of complex remedial action schemes, which can in
turn lower the risk of misoperations due to design errors, relay
failures, or communication failures.
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    \72\ NERC defines a remedial action scheme as a scheme designed
to detect predetermined system conditions and automatically take
corrective actions that may include, but are not limited to,
adjusting or tripping generation, tripping load, or reconfiguring a
system.
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    72. Finally, transmission projects that use network management
technologies, such as dynamic line ratings, power flow controls, or
transmission topology optimization, can provide significant and
demonstrable reliability benefits by giving operators better tools to
address unforeseen system conditions. While these investments may not
be required to meet reliability standards, they can expand the event
response capabilities of the transmission system by enhancing
situational awareness and facilitating faster response times to
mitigate system disturbances, thus improving reliability. Accordingly,
we propose that an applicant may demonstrate enhanced reliability
through deployment of these technologies. Although we are proposing
specific incentives to facilitate investment in transmission
technologies,\73\ we also propose to consider the reliability benefits
offered by including these technologies in transmission projects to the
extent that these technologies add to or improve the reliability of a
transmission project as a whole. A transmission project may offer
reliability benefits both because of, and independent of, the inclusion
of transmission technologies.
---------------------------------------------------------------------------

    \73\ See infra section IV.G.2.

---------------------------------------------------------------------------

    73. In addition to the five examples of types of reliability
transmission projects discussed above, which are likely to meet the
Commission's test of providing significant and demonstrable reliability
benefits, we encourage applicants to propose other transmission
projects that they think provide significant and demonstrable
reliability benefits. We recognize the importance of maintaining a
transmission system that can withstand extreme environmental and other
disruptive events and remain operational in the face of such
challenges, which can vary based on geographic region and system
topology. Accordingly, we will also consider transmission projects that
improve resilience in awarding reliability incentives.\74\ Transmission
projects that provide resilience benefits in areas where they are
needed could include the hardening of transmission assets against
adverse weather events, fires, and geomagnetic disturbances, or event
recovery investments such as transmission facilities related to
blackstart facilities. Investments in transmission facilities for
purposes of disaster recovery, such as transformers and circuit
breakers, or other used and useful equipment for emergency response and
recovery, also are potential investments that could be considered for a
reliability incentive.
---------------------------------------------------------------------------

    \74\ See Grid Reliability and Resilience Pricing and Grid
Resilience in Regional Transmission Organizations and Independent
System Operators, 162 FERC ] 61,012, at P 23 (2018) (proposing to
define ``resilience'' as ``the ability to withstand and reduce the
magnitude and/or duration of disruptive events, which includes the
capability to anticipate, absorb, adapt to, and/or rapidly recover
from such an event'').
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b. Proposed Showing and Commission Analysis
    74. In order to provide incentives for increasing system
reliability, we propose to award up to 50 basis points for a
transmission project that provides one or more significant and
demonstrable reliability benefits to address specific reliability
needs. The reliability incentives will be added to the applicant's base
ROE and will be subject to the 250-basis-point ROE incentives cap, as
described below.\75\ We propose that applicants should support their
requests by providing a quantitative analysis of a transmission
project's potential reliability benefits, where possible. Such analyses
should include, for example, reduced loss of load probability, reduced
unserved energy under various contingencies, reductions in reliability
unit commitments, increases in import or export capability, and
improvements in voltage stability. We would then review the potential
reliability benefits to determine whether and how much of an ROE
incentive the transmission project should be awarded. If an applicant
is not able to provide a quantitative analysis, we also propose to
consider qualitative demonstrations that a transmission project
provides one or more significant and demonstrable reliability benefits
to address specific reliability needs.
---------------------------------------------------------------------------

    \75\ See infra section IV.C.
---------------------------------------------------------------------------

    75. We seek comment as to whether there are different and/or
additional elements that affect the reliability of the transmission
system that we should consider in our analysis for reliability ROE
incentives. If so, we request that commenters explain how a
transmission project improves various elements of system reliability,
how an applicant can demonstrate that a transmission project provides
these benefits quantitatively or qualitatively in the absence of a
quantitative analysis, and how we can measure or evaluate that
demonstration.

C. Ensuring Reasonableness of ROE

    76. In addition to ensuring an ROE that is sufficient to attract
investment in transmission facilities, the Commission must also ensure
that rates adopted under this policy remain just and reasonable and not
unduly discriminatory or preferential under FPA sections 205 and
206.\76\ In Order No. 679, the Commission required that any ROE
incentives would be subject to the total ROE remaining within the zone
of reasonableness and found that an ROE within the zone of
reasonableness would be adequate to attract new investment.\77\ Due to
changing investment conditions, we propose to change the current policy
of interpreting FPA section 219(d) to require that the ROE, inclusive
of any incentives, remain within the zone of reasonableness. We propose
to allow the ROE incentives to exceed the zone of reasonableness when
added to the base ROE. However, we are proposing to modify Sec.
35.35(b)(2) of the Transmission Incentives Regulations to cap ROE
incentives, including incentives to attract new investment, for
increasing reliability, for transmission technology investment, and for
joining and remaining in a Transmission Organization, to a total of no
more than 250 basis points, as explained further below. Consistent with
Congressional directive in FPA section 219(d), all ROE incentives must
be just and reasonable.
---------------------------------------------------------------------------

    \76\ 16 U.S.C. 824s(d).
    \77\ Order No. 679, 116 FERC ] 61,057 at PP 2, 91-93. The
Commission assembles and uses the zone of reasonableness in its
evaluation of the justness and reasonableness of public utility ROEs
in order to balance the interests of investors and consumers. See
Emera Maine v. FERC, 854 F.3d 9, 20-21 (DC Cir. 2017) (Emera Maine).
---------------------------------------------------------------------------

    77. The Commission has previously recognized that its obligations
under FPA sections 219 and 205 overlap in significant ways, and it may
be difficult to meaningfully distinguish between an ROE that
appropriately reflects a public utility's risk and an incentive ROE to
attract new investment.\78\ Nevertheless, the Commission is ``obligated
to establish ROEs for public utilities that both reflect the financial
and regulatory risks attendant to a particular transmission project and
that are sufficient to actively promote capital investment.'' \79\
Although the Commission previously harmonized these principles under
the zone of reasonableness, we believe that a change in policy
recognizing these differences is justified.
---------------------------------------------------------------------------

    \78\ Order No. 679-A, 117 FERC ] 61,345 at P 15.
    \79\ Id.
---------------------------------------------------------------------------

    78. Our proposal recognizes that base ROE and transmission ROE
incentives serve different functions. The Commission has found that
base ``ROE `should be commensurate with returns on investments in other
enterprises having corresponding risks' and `sufficient to assure
confidence in the financial integrity of the enterprise, so as to
maintain its credit and attract capital.' '' \80\ This is different
from FPA section 219(b)(2), which provides that the Commission should
offer a return on equity that attracts new investment in transmission
facilities (including related transmission technologies). The
Commission has explained that, ``[i]n contrast to a base-level ROE that
reflects the financial and regulatory risks of an investment, an
`incentive' has been more typically associated with specific basis
point additions to a base ROE to satisfy discrete policy objectives.''
\81\ Therefore, the returns provided by base ROE serve a different
purpose than the separate grant of authority in FPA section 219(b)(2)
to provide a return on equity that attracts new investment in
transmission facilities (including related transmission technologies).
We find that the different purpose for an incentive ROE adder than for
a base ROE provides that ROE incentives may be just and reasonable
under different circumstances than base ROEs. Therefore, ROE incentives
may meet a different test for just and reasonable

rates than for a base ROE, and ROE incentives that are added to the
base ROE are, therefore, not required to be bound by the zone of
reasonableness in order to be just and reasonable and not unduly
discriminatory.
---------------------------------------------------------------------------

    \80\ Emera Maine, 854 F.3d at 20 (citing FPC v. Hope Nat. Gas
Co., 320 U.S. 591, 603 (1944); Bluefield Waterworks & Improvement
Co. v. Pub. Serv. Comm'n of W. Va., 262 U.S. 679, 692-93 (1923)).
    \81\ Order No. 679-A, 117 FERC ] 61,345 at n.19.
---------------------------------------------------------------------------

    79. In Order No. 679, the Commission found that allowing ROE
incentives up to the upper end of the zone of reasonableness was
consistent with FPA section 205 and was ``adequate to attract new
investment and consistent with the intent of Congress in FPA section
219.'' \82\ Nevertheless, given the Commission's experience with the
transmission incentives policy under FPA section 219, we believe that
this existing limit on ROE incentives may no longer be adequate to
attract new investment in transmission facilities, as required by FPA
section 219. For example, the traditional starting point for analyzing
the base ROEs of a group of utilities with above average risk is the
upper midpoint of the zone of reasonableness, but, if the Commission
were to retain ROE incentive limits based on the upper end of the zone
of reasonableness, the proximity of the base ROEs of such average
utilities to that upper end may prevent them from receiving the
incentives granted by the Commission under FPA section 219 in order to
provide a rate of return that attracts new investment. Limiting ROE
incentives to the zone of reasonableness may undermine the Commission's
ability to recognize and address the separate need to attract new
investment and exposes transmission investment receiving incentive
rates to the additional risk that changes to the public utility's risk
profile may lower the incentives granted by the Commission. We do not
believe it was the intent of Congress to preclude utilities with above-
average risk profiles from receiving ROE incentives. Therefore, we
propose to remove this restriction and recognize that rates outside the
zone of reasonableness can be just and reasonable, subject to the
following restriction.
---------------------------------------------------------------------------

    \82\ Order No. 679, 116 FERC ] 61,057 at P 93.
---------------------------------------------------------------------------

    80. In place of limiting ROE incentives to the zone of
reasonableness, we propose to establish a cap on total ROE incentives
applicable to all public utilities regardless of their associated risk
profiles. Since Order No. 679, the Commission has regularly reduced an
applicant's requested ROE incentive when the cumulative number has
appeared high based on the risks of the transmission project.\83\ In
order to provide applicants additional certainty on how the Commission
will review requests for ROE incentives, we propose to adopt a 250-
basis-point cap for all ROE incentives consistent with our precedent
and propose that ROE incentives up to and including this cap will be
just and reasonable as required by section 219(d). However, as
discussed above, this cap would not be subject to the zone of
reasonableness used to establish a public utility's base ROE.
---------------------------------------------------------------------------

    \83\ See, e.g., Atl. Grid Operations A LLC, 135 FERC ] 61,144,
at PP 7, 128 (2011) (reducing a requested 300 basis point ROE
incentive to 250 basis points); Primary Power, LLC, 131 FERC ]
61,015, at PP 8, 152 (2010) (reducing a requested 300 basis point
ROE incentive to 200 basis points), order on reh'g, 140 FERC ]
61,052 (2012), pet. for review dismissed sub. nom, Public Service
Elec. and Gas Co. v. FERC, 783 F.3d 1270 (2015); N.Y. Reg'l
Interconnect, Inc., 124 FERC ] 61,259, at PP 2, 44 (2008) (reducing
a requested 400 basis point ROE incentive to 275 basis points).
---------------------------------------------------------------------------

    81. We seek comment on this proposal, including on the level of the
cap on the ROE incentives requested by applicants. In light of the
changes in base ROE policy, we also seek comment on whether the
Commission should allow applicants, on a case-by-case basis, to seek
removal of the zone-of-reasonableness conditions placed on previously
granted incentives and to replace those restrictions with a hard cap on
the incentives they have been granted.

D. Non-ROE Incentives

    82. We propose in Sec.  35.35(d)(2)-(7) of the revised Transmission
Incentives Regulations to continue to provide non-ROE incentives.\84\
These incentives will be available to all transmission projects that
demonstrate that they either ensure reliability or reduce the cost of
delivered power by reducing transmission congestion. These incentives
include: Abandoned Plant Incentive, CWIP Incentive, hypothetical
capital structures, accelerated depreciation for rate recovery, and
regulatory asset treatment.\85\ These incentives facilitate the
development of beneficial transmission and are consistent with a
benefits-based approach. Applicants for these incentives will remain
eligible for the rebuttable presumptions that transmission projects
which are approved through regional transmission planning processes or
state siting approvals ensure reliability or reduce the cost of
delivered power by reducing congestion.\86\
---------------------------------------------------------------------------

    \84\ These incentives are provided under Sec.  35.35(d)(1)(ii)-
(viii) of the currently effective Transmission Incentives
Regulations.
    \85\ See 18 CFR 35.35(d)(1)(ii)-(viii).
    \86\ Id. at 35.35(i).
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    83. We continue to believe that an overly rigid approach to
hypothetical capital structures may discourage the development of
transmission projects and recognize that the instances where
hypothetical capital structure are and can be used reflect unique
circumstances.\87\ Accordingly, we propose in Sec.  35.35(d)(4) of the
revised Transmission Incentives Regulations to allow applicants to
request a hypothetical capital structure and will continue to evaluate
such requests on a case-by-case basis. An applicant must demonstrate
that the proposed hypothetical capital structure is suited to the
unique circumstances of its transmission project as part of its showing
that the requested incentives are just and reasonable and not unduly
discriminatory.
---------------------------------------------------------------------------

    \87\ See Order No. 679, 116 FERC ] 61,057 at PP 132, 134.
---------------------------------------------------------------------------

    84. Additionally, we recognize that transmission planning and
selection has changed significantly since the issuance of Order Nos.
679 and 679-A, particularly with the implementation of Order No. 1000.
We believe that these changes should be reflected in our transmission
incentives policy and, therefore, propose to revise Sec.  35.35(j)(2)
of the Transmission Incentives Regulations to change the start of the
effective date for the Abandoned Plant Incentive from the date that the
Commission issues an order granting 100 percent recovery of abandoned
plant costs to the date that transmission projects are selected in a
regional transmission planning process for the purposes of cost
allocation. Starting the eligibility period for the Abandoned Plant
Incentive at the date of approval by the Commission leads to the
exclusion of costs incurred between approval of the transmission
project by the regional transmission planning process and Commission
approval of the incentive, and this delay is not warranted for purposes
of cost control, because the transmission planner has made the decision
to undertake the transmission project.\88\ Under this proposal, in
order to recover any costs under the Abandoned Plant Incentive, an
applicant must continue to demonstrate in a FPA section 205 filing that
the transmission projects were abandoned for reasons outside of its
control and that the costs incurred were prudent.
---------------------------------------------------------------------------

    \88\ See, e.g., American Electric Power Company, Inc., Docket
No. PL19-3-000, Comments, at 18 (filed June 26, 2019) (AEP
Comments); Pacific Gas & Electric Company and San Diego Gas &
Electric Company, Comments, Docket No. PL19-3-000, at 11-13 (filed
June 26, 2019).

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E. Incentives Available to Transcos

1. Background and Experience to Date
    85. In Order No. 679, the Commission acknowledged the promise of
Transcos in catalyzing needed investment in transmission facilities
that further FPA section 219's policy objectives of ensuring
reliability and reducing the cost of delivered power by reducing
transmission congestion.\89\ The Commission stated that Transcos ``have
demonstrated the capability to invest, on a timely basis, significant
amounts of capital in transmission projects and in efforts to reduce
congestion.'' \90\ The Commission attributed the positive record of
Transco investment in transmission facilities to the stand-alone nature
of these entities, which the Commission believed: (1) Reduced the
competition between generation and transmission functions within
corporations; (2) produced incentives to better manage transmission
assets and develop innovative services; (3) granted better access to
capital markets given a more focused business model; and (4) enabled
better responses to market signals that indicate when and where
transmission investment is needed. The Commission also noted that,
unlike many traditional public utilities, Transcos avoid potential
uncertainty associated with the need for additional rate recovery
approval from state regulators.\91\
---------------------------------------------------------------------------

    \89\ Order No. 679, 116 FERC ] 61,057 at P 206; Promoting
Transmission Investment through Pricing Reform, Notice of Proposed
Rulemaking, 113 FERC ] 61,182, at P 38 (2005) (2005 Transmission
Incentives NOPR).
    \90\ 2005 Transmission Incentives NOPR, 113 FERC ] 61,182 at P
38.
    \91\ Id. P 39.
---------------------------------------------------------------------------

    86. In recognition of these beneficial attributes and a desire to
promote and remove barriers to Transco formation, the Commission
formalized two incentives available exclusively to Transcos: (1) An ROE
incentive to be applied to an eligible Transco's entire rate base
(Transco ROE Incentive),\92\ and (2) an alternative ratemaking
treatment that adjusts the book value of transmission assets being sold
to a Transco to remove the disincentive associated with the impact of
accelerated depreciation on federal capital gains tax liabilities
(Transco ADIT Adjustment).\93\ Regarding the Transco ROE Incentive, the
Commission's policy requires that any incentive ROE awarded to Transcos
both encourage their formation and be sufficient to attract investment
after the Transco is formed.\94\ Regarding the Transco ADIT Adjustment,
the Commission indicated that it would continue to consider requests
for that ratemaking treatment on a case-by-case basis when a Transco is
purchasing existing transmission facilities.\95\
---------------------------------------------------------------------------

    \92\ 18 CFR 35.35(d)(2)(i); Order No. 679, 116 FERC ] 61,057 at
P 221.
    \93\ 18 CFR 35.35(d)(2)(ii); Order No. 679, 116 FERC ] 61,057 at
PP 247-248.
    \94\ 18 CFR 35.35(d)(2); Order No. 679, 116 FERC ] 61,057 at P
221.
    \95\ Order No. 679, 116 FERC ] 61,057 at P 248.
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    87. As discussed above, in the nearly 14 years since Order No. 679,
there have been significant developments in how transmission is
planned, developed, operated, and maintained. When the Commission
adopted Order No. 679, there was a shortage of transmission investment
and development. The Commission recognized the potential of Transcos to
assist in addressing the lack of transmission development and
formalized the Transco ROE Incentive to encourage these capabilities.
However, we have not seen evidence of Transcos delivering the outcomes
that the Commission had expected in establishing Transco incentives in
Order No. 679.
    88. For instance, in Order No. 679, the Commission articulated an
expectation that Transcos would be uniquely positioned to build, on a
timely basis, significant amounts of transmission assets to further the
policy objectives of FPA section 219.\96\ The Commission's expectation
was based, in part, on observations of high levels of deployment of
transmission plant among Transcos prior to Order No. 679.\97\ However,
with hindsight, we have found that those investment levels were
transitory, and that Transcos are deploying capital to support
transmission development in a manner that is comparable and not
significantly greater than that of their traditional public utility
counterparts.\98\ Several commenters similarly note that Transcos have
not exhibited the remarkable levels of transmission investment on which
the Commission justified the Transco ROE Incentive.\99\
---------------------------------------------------------------------------

    \96\ Id. PP 225-226; see also 2005 Transmission Incentives NOPR,
113 FERC ] 61,182 at P 38.
    \97\ Order No. 679, 116 FERC ] 61,057 at P 222.
    \98\ For example, transmission plant growth rates for
subsidiaries of ITC Holdings Corp., a large Transco holding company,
are within the normal range of other transmission owners in MISO,
where those subsidiaries operate.
    \99\ Aluminium Association, et al., Joint Comments, Docket No.
PL19-3-000, at 67 (filed June 26, 2019) (Joint Commenters Comments);
Resale Power Group of Iowa Comments, Docket No. PL19-3-000, at 22-23
(filed June 26, 2019) (Resale Power Comments); Transmission Access
Policy Study Group Comments, Docket No. PL19-3-000, at 93 (filed
June 26, 2019) (TAPS Comments).
---------------------------------------------------------------------------

    89. Additionally, in Order No. 679 the Commission found that
concerns regarding high rates for Transco customers were
speculative.\100\ However, experience to date has shown those concerns
to be valid. For example, the network rates for ITC Midwest, a
subsidiary of ITC Holdings Corp., have been the highest in MISO since
2010, while network rates for its sister company Michigan Electric
Transmission Company have exceeded the MISO median in all but one year
since 2009.\101\ Some commenters also echo concerns regarding elevated
rates among Transcos.\102\ Against this backdrop, we note that several
commenters argue that increasingly robust transmission planning
processes--in part because of the independent role of RTOs/ISOs and
Commission reforms such as Order No. 1000--may have helped achieve
investment outcomes comparable to those envisioned by the Commission in
Order No. 679 when it established the Transco ROE Incentive.\103\
---------------------------------------------------------------------------

    \100\ Order No. 679, 116 FERC ] 61,057 at P 228.
    \101\ This reflects our analysis of MISO's Open Access
Transmission, Energy and Operating Reserve Markets Tariff Schedule 9
Network Rates posted on MISO's Open Access Same-Time Information
System. See MISO, Transmission Rate Information, https://www.oasis.oati.com/woa/docs/MISO/MISOdocs/Transmission_Rates.html.
    \102\ Resale Power Comments at 26; Joint Commenters Comments at
68.
    \103\ Resale Power Comments at 21-22; TAPS Comments at 93; Joint
Commenters Comments at 67; Oklahoma Corporation Commission Comments,
Docket No. PL19-3-000, at 1 (filed June 27, 2019) (Oklahoma
Commission Comments).
---------------------------------------------------------------------------

    90. Furthermore, the Transco business model that the Commission
envisioned in approving Transco incentives under FPA section 205 and
then in Order No. 679 was one of robust independence.\104\ However,
currently, the majority of Transcos have started out as, or become,
transmission affiliates of integrated utilities.\105\ Such entities do
not provide assurance of an absence of conflicts of interest with
generation-owning affiliates or of a singular focus on transmission
investment and operation. Further, the availability of these incentives
for Transcos has not elicited the formation of many new Transcos. Since
2006, the Commission has granted the Transco ROE Incentive to 12
entities,\106\ some of which never

developed any transmission and several of which are affiliated with
other Transcos. Meanwhile, transmission-only entities that may not
qualify for, or have not requested, the Transco ROE Incentive have
continued to invest in transmission and, notably, participate in
competitive transmission solicitations.
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    \104\ See Order No. 679, 116 FERC ] 61,057 at P 202.
    \105\ The ITC companies were acquired by Fortis Inc., which owns
multiple vertically integrated utilities. See Fortis Inc., 156 FERC
] 61,219, at P 1 (2016), order on clarification, 158 FERC ] 61,019
(2017). NextEra Energy, which owns, NextEra Energy Transmission,
also owns Florida Light and Power Company and a portfolio of
generation resources across the country. See NextEra Energy
Transmission, LLC, 166 FERC ] 61,188, at PP 3-6 (2019).
    \106\ The Commission granted a Transco ROE Incentive in the
following 12 cases: GridLiance West Transco LLC, 164 FERC ] 61,049
(2018); NextEra Energy Transmission N.Y., Inc., 162 FERC ] 61,196
(2018); Midcontinent Indep. Sys. Op., Inc., 150 FERC ] 61,252
(2015), order on clarification and reh'g, 154 FERC ] 61,004 (2016);
Desert Southwest Power, LLC, 135 FERC ] 61,143 (2011); Atl. Grid
Operations A LLC, 135 FERC ] 61,144; Western Grid Development, LLC,
130 FERC ] 61,056, order on reh'g, 133 FERC ] 61,029 (2010); Primary
Power, 131 FERC ] 61,015; Green Energy Express LLC, 129 FERC ]
61,165 (2009), order on reh'g, 130 FERC ] 61,117 (2010); Green Power
Express LP, 127 FERC ] 61,031 (2009), order on reh'g, 135 FERC ]
61,141 (2011); ITC Great Plains, LLC, 126 FERC ] 61,223 (2009),
order on reh'g, 150 FERC ] 61,225 (2015); N.Y. Reg'l Interconnect,
124 FERC ] 61,259; Startrans IO, L.L.C., 122 FERC ] 61,306 (2008),
order on reh'g, 133 FERC ] 61,154 (2010).
---------------------------------------------------------------------------

2. Proposed Revisions to Transco Incentives
    91. We acknowledge the role that individual Transcos have played,
and continue to play, in deploying new transmission infrastructure;
however, we believe that the Transco business model has not enhanced
the deployment of transmission infrastructure sufficiently to justify
incentives based on this business model beyond those incentives
available to all public utilities. We find that the circumstances have
changed significantly since Order No. 679 and that the key reasoning
underpinning the Commission's policy for establishing a Transco ROE
Incentive and a Transco ADIT Adjustment no longer apply. Accordingly,
we propose to revise our regulations to eliminate both of those
incentives prospectively by removing current sections 35.35(b)(1) and
35.35(d)(2) of the Transmission Incentives Regulations. Although we
propose to eliminate those incentives exclusively available to
Transcos, we do not revoke eligibility for Transcos to seek the
incentives available to all public utilities as proposed in this NOPR.
We view the suite of incentives for which Transcos (and all public
utilities) remain eligible, in addition to those incentive proposals
contemplated elsewhere in this NOPR, as sufficient to attract capital
needed to achieve the transmission investment objectives articulated in
FPA section 219. We invite comment on this proposal. We also seek
comment regarding how the Commission should treat Transco ROE
Incentives that were previously granted.

F. Incentives for RTO Participation

1. Background and Experience to Date
    92. FPA section 219(c) requires the Commission to ``provide for
incentives to each transmitting utility or electric utility that joins
a Transmission Organization.'' In Order No. 679, the Commission found
that the RTO-Participation Incentive should be granted to utilities
that ``join and/or continue to be a member of an ISO, RTO, or other
Commission-approved Transmission Organization.'' \107\ The Commission
declined to make a finding on the appropriate size or duration of the
RTO-Participation Incentive, but noted that the basis for providing the
incentive to existing members ``is a recognition of the benefits that
flow from membership in such organizations and the fact [that]
continuing membership is generally voluntary.'' \108\ The Commission
also declined to create a generic ROE incentive for such membership,
and instead decided that it would consider the appropriate ROE
incentive when public utilities requested it on a case-by-case
basis.\109\ Although the Commission declined to make a finding on the
appropriate size or duration of the incentive in Order No. 679,
applicants have subsequently requested a uniform, 50-basis-point level
for demonstrating they have joined an RTO or ISO, which the Commission
has granted without modification.
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    \107\ Order No. 679, 116 FERC ] 61,057 at P 326.
    \108\ Id. PP 327, 331.
    \109\ Id. P 327.
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    93. The stated purpose of FPA section 219 is to provide incentive-
based rate treatments that benefit consumers by ensuring reliability
and reducing the cost of delivered power by reducing transmission
congestion. We believe the RTO-Participation Incentive has not only
encouraged the formation of and participation in RTOs/ISOs, but also
has resulted in significant benefits for consumers. Specifically, PJM
estimates that the total annual benefits and savings to PJM's customers
in the 13 states and the District of Columbia in which it operates to
be between $3.2 and $4 billion; \110\ SPP estimates that savings from
its markets and transmission planning services provide more than $2.2
billion annual benefits to its members at a benefit-to-cost ratio of
14-to-1; \111\ and MISO estimates that MISO delivered between $3.2
billion and $3.9 billion in regional benefits in 2018.\112\ Although
RTO/ISO participation provides substantial benefits for customers, we
agree with commenters that the RTO-Participation Incentive also
compensates transmitting utilities for the ongoing duties and
responsibilities of RTO/ISO membership.\113\
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    \110\ See PJM Interconnection, L.L.C., Comments, Docket No.
PL19-3-000, at 6-7 (filed June 26, 2019) (PJM Comments).
    \111\ See SPP, 14-to-1 The Value of Trust, at 3 (May 29, 2019),
https://spp.org/documents/58916/14-to-1%20value%20of%20trust%2020190524%20web.pdf.
    \112\ See MISO, 2019 Value Proposition, at 5 (Feb. 7, 2020),
https://cdn.misoenergy.org/20200214%202019%20Value%20Proposition%20Presentation425712.pdf.
    \113\ See Edison Electric Institute Comments, Docket No. PL19-3-
000, at 23 (filed June 26, 2019) (EEI Comments); PJM Comments at 4-
5.
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    94. In Order No. 679, the Commission stated that the basis for the
RTO-Participation Incentive is ``a recognition of the benefits that
flow from membership in such organization and the fact [that]
continuing membership is generally voluntary.'' \114\ The RTO-
Participation Incentive was not only intended to induce transmitting
utilities to turn over operational control over their transmission
facilities to Transmission Organizations, but also to recognize the
benefit to consumers of RTO/ISO membership by ensuring reliability and
reducing the cost of delivered power by reducing congestion. Experience
to date has demonstrated that the benefits from membership in a
Transmission Organization is significant regardless of the
voluntariness of such membership. These benefits include access to
large competitive markets, optimization of the transmission system,
regional transmission planning that supports more efficient or cost-
effective transmission development to meet regional transmission needs,
reduction of the costs of carrying reserves through reserve sharing,
and increased access to an expanded set of diverse resources. All of
these attributes reduce the cost of delivered power by facilitating
broader and more robust access to more sources of power, and to the
lowest-cost source of power, over a wide geographic footprint. These
benefits have increased over time. PJM notes that its value proposition
for consumers has increased over the past 13 years to a current
estimate of $3.2 to $4.0 billion,\115\ an increase from an estimated
$2.2 billion in 2011.\116\
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    \114\ Order No. 679, 116 FERC ] 61,057 at P 331.
    \115\ PJM Comments at 7.
    \116\ See FERC, 2011 Report to Congress on Performance Metrics
for Independent System Operators and Regional Transmission
Organizations, app. H at 313 (Apr. 2011), https://www.ferc.gov/industries/electric/indus-act/rto/metrics/pjm-rto-metrics.pdf.
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    95. FPA section 219(c) contains no requirement that participation
in an RTO/ISO must be voluntary to merit the

incentive; rather, it states the Commission shall provide for
incentives. Neither the benefits that customers receive from a
transmitting utility's or electric utility's membership in an RTO/ISO,
nor the burden imposed upon the transmitting utility or electric
utility, are diminished if the transmitting utility or electric utility
is required by law to join an RTO or ISO.
    96. The duties and responsibilities associated with RTO/ISO
membership have also increased since Order No. 679. These include: loss
of operational control of transmission facilities to a third party; an
obligation to build new transmission facilities at the direction of the
RTO/ISO; diminished decision-making control over assets while retaining
the responsibility of maintaining the system; meeting reliability
standards; obligations to obey RTO/ISO rules; and an obligation to
provide electric service even when foundational agreements can change,
thereby changing the terms and conditions under which the transmitting
utility initially agreed to participate in the RTO/ISO.\117\ These
responsibilities similarly persist regardless of the voluntariness of
RTO/ISO membership.
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    \117\ See, e.g., EEI Comments at 22; Ameren Services Company
Comments, Docket No. PL19-3-000, at 24 (filed June 26, 2019); AEP
Comments at 13.
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2. RTO-Participation Incentive Proposal
    97. We propose to combine and modify Sec. Sec.  35.35(b)(2) and
35.35(e) of the existing Transmission Incentives Regulations in Sec.
35.35(f) of the revised Transmission Incentives Regulations to provide
transmitting utilities that turn over their wholesale transmission
facilities to the RTO/ISO \118\ a fixed 100-basis-point RTO-
Participation Incentive, and modify its implementation, as discussed
below. The benefits of having centralized electricity markets and
regional transmission planning conducted by an RTO/ISO, combined with
compensating RTO/ISO participants for their added responsibilities,
support the Congressional mandate of an RTO-Participation Incentive to
encourage transmitting utilities to turn planning and operational
control over their transmission facilities to Transmission
Organizations. Standardizing and increasing the level at which this
incentive is awarded reasonably recognizes the increased customer value
resulting from transmitting utilities joining and continuing to
participate in an RTO/ISO since the issuance of Order No. 679. It also
recognizes the increased duties and responsibilities associated with
RTO/ISO membership since the issuance of Order No. 679, including,
inter alia, the development of regional transmission planning
processes. These additional roles and responsibilities of RTOs/ISOs and
their transmission owners have benefited customers, as illustrated by
the increased and substantial benefits demonstrated by RTOs/ISOs. For
instance, as noted above, PJM has stated that its value proposition for
consumers is $3.2 to $4.0 billion in annual savings, an increase from
an estimated $2.2 billion in 2011. Additionally, from 2007 through
2019, the Value Proposition study revealed that MISO provided the
region an estimated $26 billion in cumulative net benefits.\119\ In
order to address regulatory uncertainty and fulfill our directive to
offer an incentive for RTO membership, we find that the RTO-
Participation Incentive remains an effective incentive to recognize the
benefits, risks, and associated obligations of RTO membership and meet
the requirements of FPA section 219(c).
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    \118\ 16 U.S.C. Sec. 824s(c). While the rest of the proposals in
this proposed rule apply to public utilities, the proposal in the
section related to RTO participation apply to ``transmitting
utility'' or ``electric utility'' as required by Congress in FPA
section 219(c).
    \119\ MISO, 2019 Value Proposition, at 3 (Feb. 7, 2020), https://cdn.misoenergy.org/20200214%202019%20Value%20Proposition%20Presentation425712.pdf.
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    98. As noted by commenters to the 2019 Notice of Inquiry,
permitting some RTO/ISO members to receive the RTO-Participation
Incentive, while disallowing the RTO-Participation Incentive for
entities that are required to join or remain in an RTO/ISO, would
create an uneven playing field in the competition for investment
capital.\120\ Such an uneven playing field has the potential to distort
investment decisions within interstate corporate families and within
multistate RTOs/ISOs. Furthermore, FPA section 219 obligates the
Commission to provide an incentive to each transmitting utility or
electric utility that joins a Transmission Organization, independent of
the obligation to do so.\121\ We also note that the issue of whether
RTO/ISO membership is voluntary for certain transmitting utilities
within RTOs/ISOs has become subject to litigation and challenges at the
Commission.\122\ Accordingly, we propose that the RTO-Participation
Incentive should be applied to transmitting utilities that join and
remain enrolled in an RTO/ISO regardless of the voluntariness of their
participation.
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    \120\ EEI Comments at 23-24.
    \121\ 16 U.S.C. 824s(c).
    \122\ See Cal. Pub. Util. Comm'n v. FERC, 879 F.3d 966, 980 (9th
Cir. 2018) (remanding to the Commission the issue of whether PG&E
was eligible for a 50-basis-point RTO-Participation Incentive for
its continued participation in CAISO in light of protestors'
arguments that PG&E's participation in CAISO is mandated by
California state law); N.Y. State Dept. of Pub. Serv., Protest,
Docket No. ER20-715-000, at 5 (filed Jan. 21, 2020) (protesting that
Central Hudson Gas & Electric Corp. should not receive an RTO-
Participation Incentive because it is already a member of NYISO).
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    99. We propose to continue to permit transmitting utilities or
electric utilities that join an RTO/ISO the ability to recover
prudently incurred costs associated with joining the RTO/ISO in their
jurisdictional rates. Additionally, we propose to standardize the RTO-
Participation Incentive at a uniform level of 100 basis points to a
transmitting utility that joins and continues to be a member of an RTO/
ISO and turns over operational control of its wholesale transmission
facilities to the RTO/ISO.\123\ We propose that both transmitting
utilities newly joining an RTO/ISO and those that already receive the
current RTO-Participation Incentive would be eligible to seek the new
100-basis-point adder. We request comment on this proposal, including
comment on what process the Commission should adopt to implement a
100basis point RTO-Participation Incentive for existing transmitting
utility rates.
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    \123\ See PPL Elec. Util. Corp., 123 FERC ] 61,068, at P 35
(2008) (finding that a ``50-basis-point adder is appropriate. The
consumer benefits, including reliable grid operation, provided by
such organizations are well documented and consistent with the
purpose of [FPA] section 219. The best way to ensure these benefits
is to provide member utilities of an RTO with incentives for joining
and remaining a member.''); Republic Transmission, LLC, 161 FERC ]
61,036, at P 33 (2017) (approving 50-basis-point RTO-Participation
Incentive ``based on Republic's commitment to become a member of
MISO and transfer operational control of the Project to MISO once
the Project has been placed in service''); Pac. Gas & Elec. Co., 148
FERC ] 61,195, at P 16 (2014) (granting request for a 50-basis-point
RTO-Participation Incentive ``based on [Pacific Gas and Electric
Company's (PG&E)] commitment to remain a member of CAISO, and its
commitment to transfer functional control of the Project to CAISO
once the Project enters service'').
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G. Incentives for Transmission Technologies

1. Background and Experience to Date
    100. FPA section 219(b)(3) directs the Commission to encourage
deployment of transmission technologies and other measures to increase
the capacity and efficiency of existing transmission facilities and
improve the operation of the transmission facilities.\124\ Under the
2012 Policy Statement, the Commission considers the incorporation of
advanced technologies to transmission projects as part of the risks and
challenges that may

warrant an increase in the ROE. The Commission evaluates deployment of
advanced technologies as part of the overall nexus analysis when an
incentive ROE is sought; there is currently no standalone incentive for
advanced technology. Additionally, the current framework does not
provide a standalone incentive for technology improvements to existing
transmission projects. Experience to date suggests that this approach
to incentivizing transmission technologies has not been effective in
encouraging deployment of such improvements. For example, many
transmission technologies discussed at the November 5-6, 2019 Grid-
Enhancing Technologies Workshop \125\ are smaller in scale, and do not
face the same challenges as large capital-intensive transmission
projects, such as siting and regulatory approvals.\126\ Furthermore,
many of the costs of transmission technologies are not currently
capitalized and hence do not benefit from ROE incentives.\127\
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    \124\ 16 U.S.C. 824s(b)(3).
    \125\ FERC, Grid-Enhancing Technologies, Notice of Workshop,
Docket No. AD19-19-000 (Sept. 9, 2019).
    \126\ See, e.g., Advanced Energy Economy, Comments, Docket No.
PL19-3-000, at 20 (filed June 26, 2019) (Advanced Energy Economy
Comments); Energy Storage Association, Comments, Docket No. PL19-3-
000, at 4 (filed June 25, 2019); Public Interest Organizations,
Comments, Docket No. PL19-3-000, at 35 (filed June 26, 2019);
Oklahoma Commission Comments at 1; TAPS Comments at 101; National
Grid USA, Comments, Docket No. PL19-3-000, at 42 (filed June 26,
2019).