[Federal Register: November 29, 2005 (Volume 70, Number 228)]
[Proposed Rules]
[Page 71409-71421]
[DOCID:fr29no05-10]

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Proposed Rules
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Part 35

[Docket No. RM06-4-000]

Promoting Transmission Investment Through Pricing Reform

Issued November 18, 2005.
AGENCY: Federal Energy Regulatory Commission.

ACTION: Notice of Proposed Rulemaking.

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SUMMARY: Pursuant to the requirements of the Transmission
Infrastructure Investment provisions in section 1241 of the Energy
Policy Act of 2005, which adds a new section 219 to the Federal Power
Act, the Federal Energy Regulatory Commission is proposing to amend its
regulations to establish incentive-based (including performance-based)
rate treatments for the transmission of electric energy in interstate
commerce by public utilities for the purpose of benefiting consumers by
ensuring reliability and reducing the cost of delivered power by
reducing transmission congestion.

DATES: Comments are due on or before January 11, 2006.

ADDRESSES: Comments may be filed electronically via the eFiling link on
the Commission's Web site at http://www.ferc.gov. Commenters unable to

file comments electronically must send an original and 14 copies of
their comments to: Federal Energy Regulatory Commission, Office of the
Secretary, 888 First Street, NE., Washington, DC, 20426. Refer to the
Comment Procedures section of the preamble for additional information
on how to file comments.

FOR FURTHER INFORMATION CONTACT:
Jeffrey Hitchings (Technical Information), Office of Markets, Tariffs
and Rates, Federal Energy Regulatory Commission, 888 First Street, NE.,
Washington, DC 20426.<PHONE_NUMBER>.
Sebastian Tiger (Technical Information), Office of Market Oversight and
Investigations, Federal Energy Regulatory Commission, 888 First Street,
NE., Washington, DC 20426.<PHONE_NUMBER>.
Andre Goodson (Legal Information), Office of the General Counsel,
Federal Energy Regulatory Commission, 888 First Street, NE.,
Washington, DC 20426.<PHONE_NUMBER>.
Tina Ham (Legal Information), Office of the General Counsel, Federal
Energy Regulatory Commission, 888 First Street, NE., Washington, DC
20426.<PHONE_NUMBER>.

SUPPLEMENTARY INFORMATION:

Issued November 17, 2005.

I. Introduction

    1. On August 8, 2005, the Energy Policy Act of 2005 (EPAct 2005 or
the Act)\1\ became law. Section 1241 of the Act (Transmission
Infrastructure Investment) adds a new section 219 to the Federal Power
Act (FPA) which mandates that not later than one year after enactment
of section 219, the Commission 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 benefiting consumers by ensuring reliability and reducing
the cost of delivered power by reducing transmission congestion. FPA
section 219 was implemented against the backdrop of declining
investment in transmission infrastructure and increasing electric load.
Transmission investment declined in real dollar terms for 23 years,
from 1975 to 1998, before increasing again, although investment for the
most recent year available, 2003, is still below 1975 levels.\2\ Over
the same time period, electric load more than doubled, resulting in a
significant decrease in transmission capacity relative to load in every
North American Electric Reliability Council region.\3\ Edison Electric
Institute (EEI) estimates that capital spending must increase by 25
percent, from $4 billion annually to $5 billion annually, to assure
system reliability and to accommodate wholesale electric markets, and
that the 2.5 percent growth rate in transmission mileage since 1999 is
insufficient to meet the expected 50 percent growth in consumer demand
for electricity over the next two decades.\4\ The Secretary of Energy's
Advisory Board at the Department of Energy determined that investment
in the transmission grid will only occur when regulatory policy: (a)
Provides reasonably certain cost recovery; (b) provides regulatory
certainty, in terms of who can operate the system and under what rules;
and (c) provides a return that makes investment in transmission a
reasonable option, considering other available investment options.\5\
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    \1\ Public Law No. 109-58, 119 Stat. 594 (2005).
    \2\ EEI Survey of Transmission Investment: Historical and
Planned Capital Expenditures (1999-2008) at 3 (2005).
    \3\ Barriers to Transmission Investment, Presentation by Brendan
Kirby (U.S. Department of Energy, Oak Ridge National Laboratory),
April 22, 2005 Technical Conference, Transmission Independence and
Investment, Docket No. AD05-5-000 (April 22, 2005 Technical
Conference).
    \4\ Energy Policy Act of 2005: Hearings before the House
Subcommittee on Energy and Commerce, 109th Congress, First Sess.
(2005) (Prepared statement of Thomas R. Kuhn, President of EEI).
    \5\ Comprehensive National Energy Policy: Hearings before the
House Subcommittee on Energy and Commerce, 108th Congress, First
Sess. (Prepared statement of Glenn English, Chief Executive Officer
of National Rural Electric Cooperatives Association).
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    2. The purpose of the proposed rulemaking is to promote greater
capital investment in new transmission capacity. As the foregoing
analysis indicates, the need for capital investment in energy
infrastructure is a national problem that requires a national solution.
Inadequate transmission infrastructure results in transmission
congestion that impedes competitive wholesale markets and impairs the
reliability of the electric grid. To address the need for transmission
capacity, the proposed rulemaking provides price reforms applicable to
the entire electric grid, in both organized and in other markets and to
both vertically-integrated utilities and transcos.\6\ We note that the
Commission has been active in responding to the need for new
transmission capacity for several years prior to the enactment of EPAct
2005, as evidenced by its issuance of a proposed policy statement to
promote the efficient operation and expansion of the transmission grid
\7\ and

a policy statement on transco independence.\8\
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    \6\ Transcos are stand-alone transmission companies that have
been approved by the Commission.
    \7\ Proposed Pricing Policy for Efficient Operation and
Expansion of Transmission Grid, 102 FERC ] 61,032 (2003). That
proposed policy statement, which was issued in Docket No. PL03-1-
000, has been superseded by this proposed rulemaking. Accordingly,
the Commission will take no further action in Docket No. PL03-1-000.
    \8\ Policy Statement Regarding Evaluation of Independent
Ownership and Operation of Transmission, 111 FERC ] 61,473 (2005)
(Transco Independence Policy Statement).
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    3. To address the need for new transmission infrastructure and to
encourage necessary investment, the new section 219 specifically
charges the Commission with the responsibility to establish, by rule,
incentive-based (including performance-based) rate treatments for the
transmission of electric energy in interstate commerce that:
    a. 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;
    b. Provide a return on equity that attracts new investment in
transmission facilities (including related transmission technologies);
    c. 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;
and
    d. Allow the recovery of all prudently incurred costs necessary to
comply with mandatory reliability standards established pursuant to
section 215 of the FPA, and all prudently-incurred costs related to
transmission infrastructure development, pursuant to section 216 of the
FPA (transmission national interest corridors).
    4. Section 219 also requires the Commission to issue a rule to
provide for incentives to each transmitting utility or electric utility
that joins a Transmission Organization \9\ and to ensure that any
recoverable costs associated with joining may be recovered through
transmission rates charged by the utility or through the transmission
rates charged by the Transmission Organization that provides
transmission service to the utility. Finally, section 219 provides that
all rates approved under these rules are subject to the requirements of
sections 205 and 206 of the FPA,\10\ which provides that all rates,
charges, terms and conditions be just and reasonable and not unduly
discriminatory or preferential.
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    \9\ Section 3(29) of the FPA (as added by section 1291(b)(29) of
EPAct 2005) defines a Transmission Organization as a regional
transmission organization, independent system operator, independent
transmission provider, or other transmission organization finally
approved by the Commission for the operation of transmission
facilities.
    \10\ 16 U.S.C. 824(d) and 824(e) (2000).
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    5. As discussed in detail below, consistent with the above
provisions of FPA section 219, in this proposed rulemaking the
Commission seeks to provide incentives and regulatory certainty
sufficient to support expanded and improved transmission infrastructure
(including advanced technologies) while at the same time ensuring that
transmission rates remain just, reasonable, and not unduly
discriminatory or preferential. We recognize that there may be other
incentives or regulatory steps that could be taken (for example,
ensuring that incentive rates, once approved, cannot be reopened for a
period of time absent compelling circumstances) to provide greater
incentive for needed investment. We seek comments not only on the
proposals herein but also on other incentives or regulatory steps that
would help fulfill the purposes of FPA section 219.

II. Summary of Proposed Regulations

    6. Pursuant to new section 219 of the FPA, the proposed amendments
to the existing regulations are intended to promote reliable and
economically efficient transmission and generation of electricity by
providing incentives for increased capital investment by providing a
rate of return that attracts new investment in transmission facilities,
and by providing incentives to utilities that join Transmission
Organizations. The Commission proposes to amend part 35 of Chapter I,
Title18, of the Code of Federal Regulations. First, section 35.34(e)
(innovative transmission rate treatments for regional transmission
organizations) in subpart F of the Commission's regulations \11\ will
be removed in its entirety. Second, a new section 35.35 under subpart
G, titled Transmission Infrastructure Investment Provisions, will be
added and will supersede section 35.34(e).
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    \11\ Subpart F of the Commission's regulations consists of Sec.
35.34 (procedures and requirements regarding regional transmission
organizations).
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    7. As proposed, new section 35.35 under subpart G would establish
the regulation's purpose, definitions, general rules, and incentive-
based rate treatments for transmission infrastructure investment.
    8. The proposed new paragraph (a) would outline the purpose of the
regulation, stating that section 35.35 establishes rules for incentive-
based (including performance-based) rate treatments for transmission of
electric energy in interstate commerce by public utilities for the
purpose of benefiting consumers by ensuring reliability, and reducing
the cost of delivered power by reducing transmission congestion.
    9. The proposed new paragraph (b) would define the terms,
``transco'' and ``transmission organization,'' as used in the
regulation:

    For purposes of this rulemaking, ``transco'' means a stand-alone
transmission company that has been approved by the Commission. As
used herein, ``stand-alone transmission company'' refers to a
company engaged solely in selling transmission at wholesale or on an
unbundled retail basis. For purposes of the proposed rule, transcos
may be independent or they may have some passive ownership interests
by affiliated traditional vertically-integrated public utilities
(traditional public utilities).\12\``Transmission Organization,'' as
defined in new section 3(29) of the FPA, means a regional
transmission organization (RTO), independent system operator (ISO),
independent transmission provider, or other transmission
organization finally approved by the Commission for the operation of
transmission facilities.

    \12\ A transco is also a public utility under the FPA unless it
is wholly owned and operated by entities that fall within section
201(f) of the FPA (e.g., governmental and certain electric
cooperative entities). So, in order to distinguish traditional
vertically-integrated public utilities from transcos for purposes of
this notice of proposed rulemaking, we refer to traditional
vertically-integrated public utilities as ``traditional public
utilities.''
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    10. The proposed new paragraph (c) would establish the general rule
that all rates approved under the rules of this section 35.35,
including any revisions to the rules, are subject to the requirements
of sections 205 and 206 of the FPA that all rates, charges, terms and
conditions be just and reasonable and not unduly discriminatory or
preferential. The proposed new paragraph (d) would describe the
incentive-based rate treatments for transmission infrastructure
investments that the Commission would authorize. For all jurisdictional
public utilities, including transcos, the Commission encourages
incentive-based rate proposals, including proposals to: (1) Provide a
rate of return on equity (ROE), within the zone of reasonableness, that
is sufficient to attract new investment in transmission facilities; (2)
recover 100 percent of prudently incurred transmission-related
Construction Work in Progress (CWIP) in rate base; (3) recover
prudently incurred pre-commercial operations costs by expensing these
costs instead of capitalizing them; (4) adopt a hypothetical capital
structure; (5)

accelerate the recovery of depreciation expense; (6) recover all
prudently-incurred development costs in cases where construction of
facilities may subsequently be abandoned as a result of factors beyond
the public utility's control; (7) provide deferred cost recovery; and
(8) provide any other incentives approved by the Commission that are
determined to be just and reasonable and not unduly discriminatory or
preferential.
    11. For transcos only, the Commission would authorize the following
additional incentives, subject to the requirements of sections 205 and
206 of the FPA that all rates, charges, terms and conditions be just
and reasonable and not unduly discriminatory or preferential: (1) A
higher ROE which is both sufficient to encourage Transco formation as
well as to attract new investment in transmission facilities; and (2)
an adjustment to 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.
    12. The proposed new paragraph (e) would describe the incentive-
based rate treatment for public utilities that join a Transmission
Organization. The Commission will consider authorizing an ROE for a
public utility that joins a Transmission Organization that is higher
than the return on equity that the Commission might otherwise allow if
the public utility did not join a Transmission Organization (but still
within the zone of reasonableness). The Commission will also allow
public utilities that join a Transmission Organization to recover
prudently incurred costs associated with joining the Transmission
Organization, either through transmission rates charged by public
utilities or through transmission rates charged by the Transmission
Organization that provides services to the public utilities.
    13. The proposed new paragraph (f) would state that the Commission
will approve prudently-incurred costs necessary to comply with the
mandatory reliability standards pursuant to section 215 of the FPA.
    14. The proposed new paragraph (g) would state that Commission will
approve prudently-incurred costs related to transmission infrastructure
development pursuant to section 216 of the FPA.
    15. The proposed new paragraph (h) would require that
jurisdictional public utilities file an annual report with the
Commission specifying current and projected transmission investment
activity.
    16. The Commission does not propose to require applicants for
incentive ratemaking treatment under section 35.35 to support their
applications with cost-benefit analyses. Customers will be protected by
the Commission's review of applications pursuant to sections 205, 206
and 219 of the FPA, which require that all rates be just and reasonable
and not unduly discriminatory or preferential.

III. Proposed Incentives and Issues for Comment

    17. Public comments on this notice of proposed rulemaking (NOPR)
are due on January 11, 2006. The Commission will carefully weigh and
consider all public comments received.
    18. The following sections detailing the proposed incentives are
organized as follows:
    (1) Provisions applicable to all public utilities;
    (2) Provisions applicable to transcos; and
    (3) Provisions applicable to public utilities that join
Transmission Organizations.
    These explanations are intended to clarify certain aspects of the
proposed regulations in this NOPR in terms of their role in fulfilling
the goals of EPAct 2005 and thereby allow for more informed comments.
Public utilities would be required to file for approval of any
incentives under section 205 of the FPA and include an explanation of
the proposed accounting for these incentives.

A. Incentives Available to All Jurisdictional Public Utilities

    19. As mentioned earlier, EEI reports that transmission capital
spending must increase an estimated 25 percent annually to assure
system reliability and accommodate wholesale markets. Undertaking
significant new transmission investment can present cash flow, revenue
recovery and financing issues, regardless of corporate structure. This
section proposes incentives applicable to all public utilities,
consistent with section 219 of the FPA, that would foster transmission
investment and thereby help to ensure reliability and reduce
transmission congestion.
1. Providing an ROE That Attracts New Investment in Transmission
Facilities
    20. Public utilities investing in transmission capacity will not
invest unless they can earn a return they consider to be sufficiently
attractive. The Commission's historical approach to developing an
allowed rate of return on equity begins with developing a proxy group
of similar risk companies. Next, a discounted cash flow (DCF) analysis
is performed on the applicant, if possible, and on the companies in the
proxy group, and a zone of reasonableness is typically developed based
on the proxy group. A DCF return within the zone of reasonableness is
then typically specified for the applicant based on a comparison of
risk factors between the applicant and the proxy group. While the
Commission has typically utilized a DCF analysis, we seek comment on
whether the Commission should consider alternatives to the DCF analysis
as a way to incent investment in new transmission capacity.
    21. As we recognized in Order No. 2000, the risk profile of the
transmission business is changing and the historical data typically
used to evaluate returns on equity may not be reliable since it
reflects a different industry structure from the one that currently
exists. A sufficient return that reflects the current industry
environment is fundamental to a public utility's decision to invest in
new capacity. Therefore, the Commission will continue to consider and
approve ROE levels that attract investment for new transmission
projects, thereby fulfilling a requirement of section 219.\13\ For
example, the Commission approved an ROE adder for Pacific Gas and
Electric Company, and a 13.5 percent ROE for the recently completed
Path 15 project in California.\14\ Similarly, Sierra Pacific Power
Company received a ROE of 12.5 to 13.5 percent for certain new
facilities it proposed that were designed to relieve congestion,
increase the transfer capability of electricity to other markets,
enhance regional reliability and connect new merchant generation supply
throughout the region.\15\ We seek comment on whether ROE adders are an
appropriate mechanism for requesting and receiving approval for an
acceptable ROE.
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    \13\ FPA section 219(b)(2).
    \14\ See Western Area Power Administration, 99 FERC ] 61,306
(2002), reh'g denied, 100 FERC ] 61,331 (2002), aff'd sub nom.
Public Utilities Commission of the State of California v. FERC, 367
F.3d 925 (D.C. Cir. 2004) (Western Area Power Administration). The
District of Columbia Circuit held that ``using price incentives to
increase the supply of energy available to customers is a valid,
non-cost consideration in setting rates.''
    \15\ Sierra Pacific Resources Operating Companies, 105 FERC ]
61,178 (2003), order on reh'g, 106 FERC ] 61,096 (2004).
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    22. Specifically, the Commission will consider granting an
incentive-based ROE to all public utilities (i.e., traditional public
utilities and Transcos) that build new transmission facilities that
benefit consumers by ensuring

reliability and reducing the cost of delivered power by reducing
transmission congestion. To receive an incentive-based ROE, a public
utility must submit a request in an application under section 205 of
the FPA and must support the ROE request by demonstrating how the new
facilities will improve regional reliability and reduce transmission
congestion. In addition, the application must explain if the facilities
are part of an independent regional planning process, such as that
administered by an RTO or ISO or another independent regional planning
process recognized by the Commission and how the proposed ROE was
derived and why it is appropriate to encourage new investment. We also
seek comment on whether the final rule should establish a definition of
``independent regional planning process'' or if the Commission should
consider them on a case-by-case basis.
2. Prudently Incurred Construction Work in Progress and Prudently
Incurred Pre-Commercial Operations Costs
    23. The long lead times required to plan and construct new
transmission can impact utility cash flow, in turn affecting the
overall financial health of a company and its ability to attract
capital at reasonable prices. For example, during the initial phases of
a transmission construction project, a utility may have significant
expenses associated with planning and siting that typically are not 100
percent recovered in rate base until commercial operation. The
Commission believes that there are at least two ways it can further the
goals of section 219 by relieving the pressures on utility cash flows
associated with transmission investment programs: (1) Including 100
percent of CWIP in rate base; and (2) expensing rather than
capitalizing pre-commercial operations costs associated with new
transmission investment.
    24. The inclusion of CWIP in rate base rather than the accrual of
allowance for funds used during construction (AFUDC) on new
construction expenditures is one way to increase cash flow. Since 1987,
the Commission's general policy has been to allow only 50 percent of
the non-pollution control/fuel conversion construction costs as CWIP in
rate base.\16\ The remaining construction costs (including an AFUDC
which provides a return on those expenditures) generally would have
been capitalized and included in rate base only when the plant went
into commercial operation, i.e., when the plant became used and useful.
Allowing some portion of the costs in rate base prior to commercial
operation provides utilities with additional cash flow in the form of
an immediate earned return.
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    \16\ See 18 CFR 35.25(c)(3).
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    25. The second way to improve utility cash flows, as mentioned
above, is to allow utilities to expense pre-commercial operations costs
related to new transmission investment rather than capitalize these
costs. Expensing the costs provides immediate cash flow that the
utility can then use as and where needed, whereas capitalizing the
costs would produce cash flow over the life of the asset.\17\
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    \17\ The Commission recognizes that not all corporate models
ascribe to the philosophy of early cash returns; some prefer the
stable long-term returns resulting from the higher rate base.
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    26. In 2004, the Commission accepted a proposal by American
Transmission Company (American Transmission) to include 100 percent of
CWIP in the calculation of transmission rates and to expense pre-
commercial operations costs for new transmission investment, instead of
capitalizing those costs and earning a return.\18\ American
Transmission stated that these incentives would help maintain adequate
cash flow during the construction process and that without these
incentives it could face a downgrade of its fixed income rating over
the next several years due to inadequate cash flow, thereby increasing
its capital costs by $176 million over a twenty-year horizon.
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    \18\ The Commission conditionally accepted the proposal for
filing, set it for hearing, subject to refund. Subsequently, the
Commission accepted a settlement that allowed American Transmission
to recover transmission-related CWIP and pre-certification costs in
rate base. See American Transmission Company, LLC, 105 FERC ] 61,388
(2003), order approving settlement, 107 FERC ] 61,117 (2004).
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    27. The Commission believes that allowing public utilities to
include up to 100 percent of prudently incurred transmission-related
CWIP in rate base and permitting them to expense prudently incurred
pre-commercial operations costs will further the goals of section 219
by relieving the pressures on utility cash flows associated with their
transmission investment programs and providing up-front regulatory
certainty. We propose to evaluate the applicability of these incentives
to transmission investment applications on a case-by-case basis.
    28. In addition to inviting comment on this provision, we
specifically request comment on (1) the types of costs that should be
considered ``pre-commercial operation costs''; and (2) whether there
should be a presumption that these incentives meet the requirements of
FPA section 219 that investments ensure reliability and reduce the cost
of delivered power.
3. Hypothetical Capital Structure
    29. The Commission has largely relied on the actual capitalization
of a utility in setting its rate of return, but we recognize that an
overly rigid approach to evaluating a proposed capital structure could
be a disincentive to investment in new transmission projects. Each
project may have unique financial and cash flow requirements, and a
rigid approach to acceptable capital structures could threaten the
viability of some projects. Accordingly, we propose that applicants be
permitted to propose an overall rate of return based on a hypothetical
capital structure, and have the flexibility to refinance or employ
different capitalizations as may be needed to maintain the viability of
new capacity additions. We expect that applicants will develop their
proposals based on the specific requirements and circumstances of their
projects, and that the Commission will evaluate proposals for this
incentive on a case-by-case basis. In their applications for incentive
treatment, public utilities should provide support for why the
hypothetical capital structure incentive is needed to promote
investment consistent with the goals of section 219. The applicant must
also provide its transmission investment plan and explain the specific
projects to which the proposed return will apply. We seek comment on
this proposal.
4. Accelerated Depreciation
    30. Accelerated depreciation is another way to increase cash flow
to utilities, thereby removing a potential disincentive to investing.
The Commission has determined in some circumstances that allowing
accelerated depreciation is warranted as an incentive to encourage
investment in transmission infrastructure because it provides improved
cash-flow and better positions public utilities for longer-term
transmission investments.\19\ While the Commission has allowed
accelerated depreciation for emergency conditions or special
projects,\20\ we believe that permitting accelerated depreciation

more broadly may further the goals of section 219 by providing
incentives to undertake transmission projects that have the potential
to reduce the cost of delivered power and ensure reliability. We
therefore propose to allow transmission facilities to be depreciated
over a period of 15 years,\21\ in place of the typical Commission
practice to allow depreciation over the useful life of the facilities,
and seek comment on whether 15 years is an appropriate time period for
cost recovery or whether the Commission should establish a presumption
of a shorter or longer depreciable life for new transmission
facilities.\22\ We also seek comment on whether accelerated
depreciation has any longer-term negative impacts that would undermine
the goals of the Act.
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    \19\ See Removing Obstacles to Increased Electric Generation and
Natural Gas Supply in the Western United States, 94 FERC ] 61,272,
further order on removing obstacles to increased energy supply and
reduced demand in the Western United States and dismissing reh'g, 95
FERC ] 61,225, order on reh'g, 96 FERC ] 61,155, order on reh'g, 97
FERC ] 61,024 (2001) (Removing Obstacles). See also Western Area
Power Administration, supra note 14.
    \20\ Id.
    \21\ Removing Obstacles, 94 FERC at 61,968-69.
    \22\ For example, in Removing Obstacles, Id., the Commission
permitted a 10-year depreciable life for facilities that will
increase transmission capacity to relieve existing constraints and
could be in service within a few months.
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5. Recovery of Costs of Abandoned Facilities
    31. Public utilities, in considering investments that fulfill the
requirements of FPA section 219, may encounter investment opportunities
with significant risk associated with factors beyond their control,
such as generation developers' decisions to develop or terminate the
development of potential resources or state or local siting decision
problems. In these circumstances, it may be appropriate to consider
ways to reduce the risk associated with potential upgrades or other
improvements to the transmission system. By providing for recovery of
the costs of facilities that may be later cancelled or abandoned due to
factors beyond the control of the public utility, the Commission could
reduce the uncertainty associated with higher risk projects, thereby
facilitating investment in these projects.
    32. Until recently, the Commission's abandoned plant policy was
based on a 50/50 sharing.\23\ The intent of this policy was to
equitably balance the interests of ratepayers and investors. The
Commission noted that the competing standards of ``used and useful to
the ratepayer'' and ``recovery of prudent investment'' were both
relevant and determined that 50 percent of the prudently incurred costs
of a cancelled generating plant should be amortized as an expense over
a period reflecting the life of the plant if it had been completed and
that the remaining 50 percent of the prudently incurred costs of the
cancelled plant should be written off as a loss.\24\ The Commission in
Public Service Company of New Mexico,\25\ extended its abandoned plant
policy to include transmission projects, finding that the policy was
not limited to generation facilities only, or to facilities that had no
customer support or involvement or to cancellations that were the
result of economics.
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    \23\ See New England Power Co., Opinion No. 295, 42 FERC ]
61,016 at 61,068, 61,081-83, order on reh'g, 43 FERC ] 61,285
(1988).
    \24\ Under this policy, ratepayers are entitled to the income
tax deduction associated with that portion of the loss for which
they are paying. In addition, they are entitled to a rate base
reduction to reflect the accumulated deferred income tax amounts
associated with 50 percent of the abandonment loss
    \25\ 75 FERC ] 61,266 at 61,859 (1996).
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    33. The policy was further expanded in a recent decision by the
Commission to allow Southern California Edison Company (SoCal Edison)
to recover all prudently incurred costs related to certain proposed
transmission facilities if those facilities were later cancelled or
abandoned.\26\ The Commission noted that the company's management did
not control the decision to develop or cancel the wind farm generation
project and that the company's shareholders did not share in the
earnings associated with the generation project. The Commission further
determined that the company might be at a higher risk in developing the
project because of factors beyond its control, such as a developer's
decision to develop or terminate development of the project. It also
noted that SoCal Edison was not a wind farm developer and therefore
would not directly benefit from the facilities. Thus, the Commission
concluded that SoCal Edison should not shoulder the risk of the
project.\27\
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    \26\ Southern California Edison Co., 112 FERC ] 61,014 at P 58-
61, reh'g denied, 113 FERC ] 61,143 at P 9-15 (2005) (SoCal Edison).
    \27\ Id. at P 61.
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    34. We believe that extension of the recent precedent on abandoned
plant cost recovery is warranted in light of the need to attract new
transmission investment. We propose to permit recovery of 100 percent
of the prudently incurred costs of transmission facilities that are
cancelled or abandoned due to factors beyond the control of the public
utility because it will reduce regulatory uncertainty associated with
investments in new transmission capacity and therefore meet the
objectives of FPA section 219. We seek comment on this proposal.
6. Deferred Cost Recovery
    35. Public utilities with a retail rate moratorium may have less
incentive to build transmission facilities that could reduce congestion
or ensure reliability because of concerns about cost recovery for those
facilities. Accordingly, the Commission proposes to permit such
utilities to use a deferred cost recovery mechanism which allows them
to commence recovery of new facility costs in FERC-jurisdictional rates
at the end of a retail rate moratorium. By providing a mechanism to
facilitate cost recovery by public utilities that build transmission
facilities during a retail rate moratorium, we will meet the goals of
FPA section 219 by providing certainty to investors that costs can be
recovered as quickly as possible.\28\ We seek comment on whether there
are other mechanisms that the Commission could institute to provide
regulatory certainty of the recovery of the costs of transmission
facilities both through retail as well as wholesale rates.
---------------------------------------------------------------------------

    \28\ The Commission has approved for Trans-Elect, Inc. (Trans-
Elect) a proposal for a deferred cost recovery provision that
allowed Trans-Elect to commence recovery of the cost of new
facilities upon the end of the retail rate moratorium. See Trans
Elect, Inc., 98 FERC ] 61,142, reh'g denied, 98 FERC ] 61,368
(2002).
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B. Incentives for Transco Formation and Transco Investment

    36. While the incentives we are proposing in this rule should
facilitate transmission expansion for all jurisdictional entities in
furtherance of the goals of section 219, we recognize that for any
transmission rate incentive that is approved by the Commission,
utilities whose rates are 100 percent FERC jurisdictional may derive
more benefit. Consequently, incentives may be more effective in
fostering new transmission investment for transcos than for traditional
public utilities that are dependent upon retail regulators for some
portion of their transmission rate recovery.
    37. In this NOPR, the Commission proposes to define a transco as a
stand-alone transmission company, approved by the Commission, which
sells transmission service at wholesale and/or on an unbundled retail
basis, regardless of whether it is affiliated with another public
utility. We invite comments on this proposed definition of transcos.
    38. We believe that transcos are an important part of the
Commission's mandate to support transmission capacity investments that
reduce the cost of delivered power by reducing transmission congestion
and that ensure reliability. This is because they have demonstrated the
capability to invest, on a timely basis, significant amounts of capital
in transmission projects and in efforts to reduce congestion. For
example, Michigan Electric Transmission Company (METC) is doubling the
net book value of its

transmission system over seven years.\29\ Similarly, since launching
its capital program in 2001, American Transmission has more than
doubled the net book value of its system, much of which is in a highly
congested area in the Midwest Independent Transmission System Operator
(Midwest ISO),\30\ and plans to invest $3.4 billion over the next 10
years.\31\ In addition, International Transmission Company
(International Transmission) made transmission investments of $81
million in 2004 and plans to invest $100 million in 2005.\32\
---------------------------------------------------------------------------

    \29\ April 22, 2005 Technical Conference, Tr. 187 (statement of
Paul McCoy, Trans-Elect, Inc.).
    \30\ April 22, 2005 Technical Conference, Tr. 192 (statement of
Dan Langren, American Transmission).
    \31\ See American Transmission's 10-Year Transmission System
Assessment Summary Report 2005 at p. 12, which is available on ATC's
Web site at http://www.atc10yearplan.com.

    \32\ April 22, 2005 Technical Conference, Tr. 79 (statement of
Joe Welch, International Transmission).
---------------------------------------------------------------------------

1. ROE-Based Incentive for Transcos
    39. The positive record of transco investment in transmission
facilities is, we believe, related to the stand-alone nature of these
entities. For instance, transcos may be better situated to meet the
transmission infrastructure goals of the FPA section 219 because they
eliminate the competition for capital between the generation and
transmission functions within corporations. In addition, transcos,
unlike some traditional public utilities, do not face a potential
decrease in value to their generation assets as a result of additional
transmission. Further, by their structure, transcos have incentives to
better manage transmission assets, have incentives to develop
innovative services, and may have better access to capital markets
given a more focused business model.\33\ Also, because transcos' sole
focus is on the business of transmission, they may be in a better
position to respond to market signals that indicate when and where
transmission investment is needed, and, therefore, are more likely to
yield additional capital investment in transmission. Unlike investments
by traditional public utilities subject to company-wide state-level
rate case risks that can undermine incentive ratemaking at the Federal
level,\34\ ratemaking for transcos is entirely subject to Federal
jurisdiction. Thus, unlike many traditional public utilities, transcos
avoid potential uncertainty associated with the need for additional
rate recovery approval by state regulatory agencies.
---------------------------------------------------------------------------

    \33\ See, e.g., ITC Holdings Corp., 102 FERC ] 61,182 at P 62,
reh'g denied, 104 FERC ] 61,033 (2003) (ITC Holdings Corp.)
(``Moreover, we believe that International Transmission's for-
profit, stand-alone transmission business will bring significant
benefits through, among other things, improved asset management,
development of innovative services, and improved access to capital
markets given a more focused business model than that of vertically-
integrated utilities.''); TRANSLink Transmission Co., L.L.C., 99
FERC ] 61,106 at 61,455 (2002), order on reh'g, 101 FERC ] 61,140
(2003) (``We have recognized that the ITC business model can bring
significant benefits to the industry. Their for-profit nature with a
focus on the transmission business is ideally suited to bring about:
(1) Improved asset management including increased investment; (2)
improved access to capital markets given a more focused business
model than that of vertically-integrated utilities; (3) development
of innovative services; and (4) additional independence from market
participants.'').
    \34\ See April 22, 2005 Technical Conference, Tr. 44 (statement
of Jon Larson, Trimaran Capital Partners).
---------------------------------------------------------------------------

    40. Given the positive contribution to transmission investment made
by transcos in the relatively short period since their creation, we
believe the formation of additional transcos will promote needed
investment in transmission facilities and we therefore want to
encourage their formation.\35\ As part of this encouragement of transco
formation, we will permit properly structured transcos to receive an
ROE that both encourages transco formation and is sufficient to attract
investment. For example, the Commission approved equity returns for
METC and International Transmission that reflect the significant
benefits that their status as transcos provide, and are higher than
those approved for integrated entities.\36\ Continuing to allow a
higher ROE (that falls within a zone of reasonableness) in recognition
of the benefits transcos provide, we believe, is an appropriate way to
ensure that the objectives of new FPA section 219 are achieved.
Therefore, the Commission will consider the positive impact transcos
have on transmission investment and in turn on the reliable and
economically efficient transmission and generation of electricity when
it evaluates ROEs proposed by properly structured transcos.
---------------------------------------------------------------------------

    \35\ We also note that, as entities that do not own or control
generation assets, transcos further ensure non-discriminatory
transmission service.
    \36\ Michigan Electric Transmission Co., LLC, 105 FERC ] 61,214
(2003); ITC Holdings Corp., supra note 33.
---------------------------------------------------------------------------

    41. We recognize that transcos can be structured with varying
degrees of independence, ranging from entities where some measure of
control and/or ownership continues to be exercised by market
participants \37\ to total structural independence, such as
International Transmission and METC. The Commission's Transco
Independence Policy Statement recognized the range of independence that
would be acceptable for Commission approval, including passive
ownership subject to the evaluation of factors that affect the
independent operation, planning and construction of transmission
systems.
---------------------------------------------------------------------------

    \37\ Section 35.34(b)(2) of the Commission's RTO regulations
defines a market participant as:
    (i) Any entity that, either directly or through an affiliate,
sells or brokers electric energy, or provides ancillary services to
the [RTO], unless the Commission finds that the entity does not have
economic or commercial interests that would be significantly
affected by the [RTO's] actions or decisions; and
    (ii) Any other entity that the Commission finds has economic or
commercial interests that would be significantly affected by the
[RTO's] actions or decisions.
---------------------------------------------------------------------------

    42. Furthermore, the Commission believes that the expansion and
investment objectives of section 219 are best met by a definition of
transcos that does not restrict the formation of transcos to only
certain organized markets. Therefore, the Commission proposes to
clarify and broaden the definition of transcos to be stand-alone
transmission companies approved by the Commission, without a condition
of membership in a RTO or ISO. We request comment on how to factor the
level of independence into any request for ROE-based incentives for
transcos. We seek comment on whether the Commission should specify
additional incentive levels, that remain within the zone of
reasonableness, to correspond to certain levels of independence and if
so, what those amounts should be. We also seek comments concerning
whether membership in an RTO or ISO should be considered in setting
incentive-based ROEs approved by the Commission for a transco. We also
seek comment on whether the Commission should reconsider how it
establishes a zone of reasonableness associated with stand-alone
transmission companies.
2. Recovery of Accumulated Deferred Income Taxes (ADIT)
    43. In order to encourage transco formation, we must also remove
disincentives that might prevent the sale or purchase of transmission
assets. For example, transmission owners are unlikely to sell
transmission assets at book value if they are not held harmless from
capital gains taxes on such sales by including an adjustment for taxes
associated with those sales. At the same time, buyers of transmission
assets may be unwilling to pay such an adjustment without some
assurance that they will be able to recover the adjustment in their
rate base.\38\ The Commission

addressed those concerns in two orders in which it allowed two Transcos
(International Transmission and METC) to include in their rates an
adjustment to recover ADIT.\39\ To remove any disincentive, the
Commission will continue to consider proposals to include adjustments
for ADIT in rates when a transco is purchasing transmission facilities.
In addition, we clarify that a transco that requests an incentive ROE
would not be precluded from also requesting the ADIT adjustment
---------------------------------------------------------------------------

    \38\ See, e.g., International Transmission Co., 92 FERC ] 61,276
at 61,915-16 (2000) (explaining potential disincentives to sellers
and buyers of transmission assets if the ADIT adjustment is not
granted).
    \39\ See ITC Holdings Corp., 102 FERC ] 61,182 at P 62 (with
regard to International Transmission Company); Trans-Elect, Inc., 98
FERC ] 61,368 at 62,590 (2002) (with regard to METC).
---------------------------------------------------------------------------

3. Other Potential Incentives for Transcos
    44. We seek comments on whether there are other potential rate
treatments that would provide incentives to form transcos and promote
capital investment or reduce disincentives to the divestiture of
transmission facilities. Do any of the incentives we are proposing need
to be modified or adapted to recognize the inherent regulatory
differences between transcos and traditional public utilities?

C. ROE Incentive for Joining a Transmission Organization

    45. FPA section 219 requires that the Commission issue a rule to
provide incentives to transmitting or electric utilities that join a
Transmission Organization and to ensure that any recoverable costs
associated with joining may be recovered through transmission rates
charged by the utility or through the rates charged by the Transmission
Organization. For certain RTOs, such as the Midwest ISO and the
Pennsylvania-New Jersey-Maryland Interconnection (PJM), the Commission
has considered incentives for public utilities that join an RTO by
allowing a public utility that joins an RTO to receive an ROE within
the zone of reasonableness that is higher than it would have received
had it not joined. We will continue to consider requests for ROE-based
incentives for utilities that join an RTO, in recognition of the
benefits such organizations bring to customers, as outlined in detail
in Order No. 2000.\40\ In addition, we will consider similar requests
by utilities that join an ISO for an incentive ROE that, while still in
the zone of reasonableness, is higher than the ROE the Commission might
otherwise allow if the utility did not join. We will require a public
utility to make a request for the incentive by making a filing with the
Commission under section 205 of the FPA.
---------------------------------------------------------------------------

    \40\ Regional Transmission Organizations, Order No. 2000, 65 FR
809 (Jan. 6, 2000), FERC Stats. & Regs., Regulations Preambles July
1996-December 2000 ] 31,089 (1999), order on reh'g, Order No. 2000-
A, 65 FR 12088 (Mar. 8, 2000), FERC Stats. & Regs., Regulations
Preambles July 1996-December 2000 ] 31,092 (2000), aff'd sub nom.
Public Utility District. No. 1 of Snohomish County, Washington v.
FERC, 272 F.3d 607 (D.C. Cir. 2001).
---------------------------------------------------------------------------

    46. We also seek comment on whether the Commission should consider
incentive-based ROE requests for public utilities that are not in an
RTO but that join a Commission-approved regional planning organization.

D. Approval of All Prudently Incurred Costs Associated With Reliability
Standards and Transmission Infrastructure Development

    47. Under new FPA section 215 (Electric Reliability), an Electric
Reliability Organization may propose, and the Commission may approve by
rule or order, reliability standards.\41\ New FPA section 219(b)(4)(A)
requires that the Commission allow recovery of all prudently incurred
costs necessary to comply with these mandatory reliability standards.
Proposed new section 35.35(f) allows for such recovery.
---------------------------------------------------------------------------

    \41\ An Electric Reliability Organization is the organization
certified by the Commission to establish and enforce reliability
standards for the bulk power system, subject to Commission review.
---------------------------------------------------------------------------

    48. New FPA section 216 (siting of interstate electric transmission
facilities) gives the Commission certain backstop siting authority for
transmission facilities when the Secretary of Energy designates a
geographic area experiencing electric transmission capacity constraints
or congestion that adversely affects consumers as a National Interest
Electric Transmission Corridor. New FPA section 219(b)(4)(B) requires
that the Commission allow recovery of all prudently incurred costs
related to infrastructure development pursuant to new section 216.
Proposed new section 35.35(g) allows for recovery of such prudently
incurred costs.

E. Commission Reporting Requirement

    49. To provide a basis for determining the effectiveness of the
proposed rules and to provide the Commission with an accurate
assessment of the state of the industry with respect to transmission
investment, proposed section 35.35(h) would require that jurisdictional
public utilities provide information annually on their current and
projected transmission investment activity. This information would be
reported to the Commission on a proposed new form which would consist
of a basic spreadsheet. For purposes of this NOPR, the proposed form is
designated as ``Form X.'' It is an appendix to this NOPR.

F. Proposal To Remove 18 CFR 35.34(e) Concerning Innovative
Transmission Rate Treatments for RTOs

    50. Section 35.34(e) of the Commission's regulations provides that
the Commission will consider authorizing certain innovative
transmission rate treatments for an approved RTO, including: A
transmission rate moratorium; innovative treatment of rates of return;
non-traditional depreciation schedules for new transmission investment;
transmission rates based on levelized recovery of capital costs;
transmission rates that combine elements of incremental cost pricing
for new transmission facilities with an embedded-cost access fee for
existing transmission facilities; and performance-based transmission
rates.
    51. Unless otherwise ordered by the Commission, the authorization
for RTOs to include innovative rate treatments in their rates expired
after January 1, 2005, with respect to transmission rate moratoriums
and rates of return that do not vary with capital structure.\42\
---------------------------------------------------------------------------

    \42\ See 18 CFR 35.34(e)(4) (2005).
---------------------------------------------------------------------------

    52. In view of section 219's mandate to provide incentives to the
entities identified therein and in order to avoid confusion that could
arise from potential conflicts between innovative rate treatments
available under section 35.34(e) and the proposed incentives discussed
in this proposed rule, the Commission proposes to remove section
35.34(e) from the regulations.

G. Other Options

    53. To fully meet the requirements of section 219, the Commission
must consider all incentives that will encourage capital spending that
reduces congestion and ensures reliability, including incentives that
have not been fully evaluated by the Commission, or may require
additional modifications to past Commission policy. Accordingly, the
Commission is proposing that eligible incentives not be limited to the
list of proposed incentives, but also include any potential incentives
proposed by public utilities and ultimately approved by the Commission
that are determined to be just and reasonable, and not unduly
discriminatory or preferential. To facilitate comments on the full
range of eligible incentives, we identify several potential incentives
and their applicability to FPA section 219. We request comments on
these potential

incentives and invite commenters to propose any other potential
incentives.
1. Single Issue Ratemaking
    54. We recognize that transmission pricing issues are some of the
most difficult issues facing the industry and that the Commission's
policy of not allowing selective adjustments to a cost-of-service may
serve as a disincentive to transmission investment.\43\ Certain
applicants for incentive rate-making treatment will be making
investments potentially affecting currently effective transmission
rates on file at the Commission. Potential applicants may consider the
time requirements and the uncertainties associated with rate
proceedings that encompass their entire transmission systems to be
disincentives to making incentive filings, as specified in this NOPR.
To ensure that the approval process for incentive treatment is as
streamlined as possible, thereby ensuring timely infrastructure
investments, the Commission is willing to consider incentive filings
that propose rates applicable only to the new transmission project.\44\
Such an incentive would be applicable to both Transcos and traditional
public utilities. We invite comments on this option.
---------------------------------------------------------------------------

    \43\ See, e.g., City of Westerville, Ohio v. Columbus Southern
Power Co., 111 FERC ] 61,307 at P 18 & n.11 (2005).
    \44\ See Removing Obstacles, supra note 20, for one type of
approach utilizing a limited section 205 filing.
---------------------------------------------------------------------------

2. Acquisition Premiums for Transco Creation
    55. The Commission has historically allowed acquisition adjustments
(the premium paid above net book value) in rates only upon a specific
showing of ratepayer benefit.\45\ However, given the positive
contributions of transcos on transmission investment noted above, it
may be appropriate to adopt a new policy regarding the recovery in
rates of an acquisition premium for purchases of transmission
facilities by a transco.\46\ We request comments on whether the
Commission should make a generic determination that general benefits
would accrue to ratepayers as a result of transco formation. We also
seek comment on whether any change in the acquisition premium/ratepayer
benefits review at the Federal level would risk increased resistance to
such acquisitions at the state level. And, we seek comment on whether
there are other mechanisms that the Commission could institute to
provide regulatory certainty of the recovery of the acquisition premium
both through retail as well as wholesale rates. Also, we seek comment
on what measure the Commission might use in evaluating the
appropriateness of such premiums as measured against, for example, the
size of the premium, the location of the assets, the level of
independence of the transco, and other relevant factors.
---------------------------------------------------------------------------

    \45\ See, e.g., UtiliCorp United Inc. and Centel Corp., 56 FERC
] 61,031 at 61,120 & nn. 26-28, reh'g denied, 56 FERC ] 61,427 at
62,528-29 (1991); Minnesota Power & Light Co., 43 FERC ] 61,104 at
61,341-42, reh'g denied, 43 FERC ] 61,502 (1989), appeal dismissed,
No. 88-2234 (8th Cir. Sept. 14, 1989). While the proposed ADIT
incentive discussed above would adjust book value and therefore may
be considered a premium on net book value, we note that the
acquisition premium discussed here is separate and distinct from the
proposed ADIT incentive.
    \46\ See April 22, 2005 Technical Conference, Docket No. AD05-5-
000, Tr. 44-45 (statement of Jon Larsen, Trimaran Capital Partners);
Tr. 215 (statement of Christopher Leslie, MacQuarie Securities
(USA), Inc.).
---------------------------------------------------------------------------

H. Other Issues for Comment

    56. In addition to seeking comments on the proposed rules and
options contained herein, the Commission seeks comments on the
following issues:
1. Performance-Based Ratemaking
    57. Because it is difficult to observe directly the level of effort
a utility, transmission company, ISO or RTO expends on cutting costs
and improving efficiency, performance-based regulation may provide a
valuable tool to motivate transmission entities to maintain and operate
their systems reliably and efficiently. In addition to incentive
regulation proposed in this NOPR to encourage expansion of the electric
transmission system generally, performance-based regulation would
establish rewards for cost saving measures or specific performance
(apart from transmission expansions). Common performance-based models
include: (1) Price-cap regulation which places ceilings on the average
price that a regulated company can charge, allowing the company rate
flexibility;\47\ (2) targeted incentives, which give a regulated
company incentives to improve specific components of its operation; and
(3) benchmark incentives which establish rewards based on the
performance of a reference group performing similar activities. The
Commission seeks comment on specific methods to incent efficiency in
the maintenance and operation of existing transmission facilities,
including rate moratoria as well as sophisticated methods of
performance based ratemaking based on specific performance metrics.
---------------------------------------------------------------------------

    \47\ The Commission has approved performance-based rates for oil
pipelines based on this model. See Revisions To Oil Pipeline
Regulation Pursuant to the Energy Policy Act of 1992, Order No. 561,
FERC Stats. & Regs. ] 30,985 (1993), 58 FR 58753 (Nov. 4, 1993),
order on reh'g, Order No. 561-A, FERC Stats. & Regs. ] 31,000
(1994), 59 FR 40243 (Aug. 8, 1994), aff'd, Association of Oil
Pipelines v. FERC, 83 F.3d 1424 (D.C. Cir. 1996).
---------------------------------------------------------------------------

    58. We seek comment on ways performance-based regulation might
apply to for-profit transcos and traditional public utilities, and not-
for-profit public utility ISOs and RTOs. In the case of for-profit
entities, we seek comment on specific transmission performance metrics
and other relevant quality-of-service measures that should be subject
to a performance standard. The Commission seeks comment on whether
there should be mechanisms for sharing gains with ratepayers and, if
so, what those mechanisms should be. In the case of not-for-profit
public utility ISOs and RTOs, we seek comment on whether and how
performance-based regulation developed for for-profit entities might be
applied to not-for-profit entities. For example, we are interested in
comments on whether and how executive performance measures might be
relevant, and whether and how performance might be benchmarked to that
of for-profit entities or other not-for-profit entities. Further, in
the discussion of advanced technologies, infra, we seek comment on
whether performance-based benchmarks for transmission costs would
provide incentives for the deployment of advanced technologies.
2. The Role of Public Power
    59. Although the transmission infrastructure provisions of section
219 apply only to public utilities, it is important that the Commission
encourage needed transmission expansion from all sectors of the
industry, including public power.\48\ Public power has demonstrated its
ability to provide capital and build transmission capacity in some of
the most critical transmission projects. For example, public power
participates as an equity owner in the American Transmission transco,
providing capital to fund transmission construction in a highly
congested market. In addition to equity ownership, public power
entities have shown that they can participate in, and benefit from,
grid expansion opportunities as counterparties to long-term contracts
such as the long-term commitment to purchase capacity from transmission
projects that are needed to allow such projects to go forward. The Long
Island Power Authority's (LIPA)

success in the Cross Sound Cable project's open season resulted in LIPA
securing long-term rights to schedule power between nodes in two RTOs.
LIPA also obtained rights for 20 years to all 660 megawatts on the
Neptune merchant transmission project, a 67-mile-long cable capable of
transporting electricity to Long Island, and in conjunction with the
Cross Sound Cable between New Haven, Connecticut, and Shoreham, will,
according to LIPA, open up an energy corridor from the Mid-Atlantic
states through Long Island into New England and Canada.\49\
---------------------------------------------------------------------------

    \48\ The term ``public power'' as used in this NOPR refers to
such traditional entities as municipal and cooperatively owned
utilities, state power authorities, Federal power marketing
administrations and power authorities, and others that do not fall
within the Commission's FPA sections 205 and 206 ratemaking
jurisdiction as public utilities.
    \49\ See LIPA's description at http://www. lipower.org/

projects/ neptune.html.
---------------------------------------------------------------------------

    60. Another option is for public power to participate in specific
transmission projects along with developers with other business models.
For example, Western Area Power Administration helped the Path 15
project to move forward by serving as project manager, acquiring needed
land rights, and owning the transmission line and the land. When public
power entities voluntarily participate in grid investments with
entities that are under the Commission's rate jurisdiction, those non-
jurisdictional public power entities can benefit from the rate policies
described in this NOPR that provide for improved certainty and possibly
enhanced revenues.
    61. New forms of public power entities may also be formed to
address infrastructure challenges. For example, the western states
spearheading the development of the Frontier transmission line project
(Frontier Line) are identifying potential business models to complete
the project. Participants in the planning of the Frontier Line are
looking to the Commission to, among other things, provide the necessary
certainty to attract investment to this type of project,\50\ and
incentives in this proposed rule may encourage interest in this type of
regional partnership, which involve both public and private entities
across several states.
---------------------------------------------------------------------------

    \50\ See April 22, 2005 Technical Conference, Tr. 166 (statement
of Joe Desmond, Deputy Secretary of Energy for the State of
California).
---------------------------------------------------------------------------

    62. A consortium approach to building new transmission may also
provide an avenue for public power to participate in new transmission
projects. Under a consortium approach, as described by PJM,\51\ the RTO
planning process becomes the platform to facilitate development of
transmission business solutions--solutions in which all parties can
participate. For example, should public power wish to lend its access
to lower cost financing to help fund such a project, the planning
process would become the forum for such discussions.
---------------------------------------------------------------------------

    \51\ See April 22, 2005 Technical Conference, Tr. 75-76, Tr.
123-124 (statement of Audrey Zibelman, PJM Interconnection);
Supplemental Comments of PJM Interconnection at p. 4 (submitted May
2, 2005, Docket No. PL03-1-000).
---------------------------------------------------------------------------

    63. Given the importance of public power participation and the
requirements of section 219, we request comments on what actions the
Commission should take in this rulemaking to encourage public power
participation in new transmission projects. For example, would the
consortium approach help to promote expansion of the transmission grid?
If so, should consortia receive incentives similar to those proposed
for Transcos, and what, if any, additional incentives could the
Commission provide to encourage such consortia?
3. Advanced Technology
    64. We also want to encourage the use of advanced technology in new
transmission projects.\52\ Advanced transmission technologies are
defined in section 1223 of EPAct 2005 to be technologies that increase
the capacity, efficiency, or reliability of an existing or new
transmission facility, including:
---------------------------------------------------------------------------

    \52\ New FPA section 219(b)(3), added by EPAct 2005, requires
that the rule established pursuant to section 219 ``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.''
---------------------------------------------------------------------------

    (1) High-temperature lines (including superconducting cables);
    (2) Underground cables;
    (3) Advanced conductor technology (including advanced composite
conductors, high temperature low-sag conductors, and fiber optic
temperature sensing conductors);
    (4) High-capacity ceramic electric wire, connectors, and
insulators;
    (5) Optimized transmission line configurations (including multiple
phased transmission lines);
    (6) Modular equipment;
    (7) Wireless power transmission;
    (8) Ultra-high voltage lines;
    (9) High-voltage DC technology;
    (10) Flexible AC transmission systems;
    (11) Energy storage devices (including pumped hydro, compressed
air, superconducting magnetic energy storage, flywheels, and
batteries);
    (12) Controllable load;
    (13) Distributed generation (including PV, fuel cells, and
microturbines);
    (14) Enhanced power device monitoring;
    (15) Direct system state sensors;
    (16) Fiber optic technologies;
    (17) Power electronics and related software (including real time
monitoring and analytical software);
    (18) Mobile transformers and mobile substations; and
    (19) Any other technologies the Commission considers appropriate.
    65. Generally, we expect that the proposed incentives discussed in
this NOPR, including the ROE-based incentives, will stimulate
investment in new transmission facilities, which will, in turn, provide
opportunities for the deployment of innovative technologies for those
new transmission facilities. Consequently, providing the proposed
incentives will fulfill the requirement of section 219(b)(3) to
encourage deployment of transmission technologies and other measures to
increase the capacity and efficiency of existing transmission
facilities and improve the operation of facilities. We ask for comments
on whether, in applications for incentive-based treatment, we should
require a technology statement. This technology statement could, for
example, describe what advanced transmission technologies were
considered and, if those technologies were not employed, why not. We
also seek comment on any other incentives that the Commission could
offer to fulfill the goals of section 219(b)(3) regarding transmission
technologies.
    66. We seek comment on whether performance-based benchmarks for
transmission costs would provide incentives for the deployment of
advanced technologies. In this risk-sharing approach, the project
sponsor would be allowed to recover costs up to a benchmark level and
ratepayers would be protected from costs above the benchmark level. If
the new technology is adopted and fails to live up to expectations, how
are those costs shared with ratepayers? And, if the new technology is
successful, how are the gains shared with ratepayers?
    67. In addition to the comments invited above, the Commission
welcomes comments on additional provisions that commenters believe
would accomplish the transmission infrastructure objectives of the Act.

IV. Information Collection Statement

    68. The Office of Management and Budget (OMB) regulations require
approval of certain information collection requirements imposed by
agency rules.\53\ Upon approval of a collection(s) of information, OMB
will assign an OMB control number and an expiration date. Respondents
subject to

the filing requirements of this rule will not be penalized for failing
to respond to these collections of information unless the collections
of information display a valid OMB control number. The NOPR amends the
Commission's regulations to implement the statutory provisions of
section 1241 of EPAct 2005. The Act directs the Commission to establish
incentive-based (including performance-based) rate treatments for the
transmission of electric energy in interstate commerce by public
utilities in order to benefit consumers by ensuring reliability and
reducing the cost of delivered power by relieving transmission
congestion. Entities seeking to build new transmission facilities must
file under part 35 of the Commission's regulations, an application
describing how the entity will bring benefits to the grid. The
information provided for under part 35 is identified as FERC-516.
---------------------------------------------------------------------------

    \53\ 5 CFR 1320.13 (2005).
---------------------------------------------------------------------------

    69. The Commission is submitting these reporting requirements to
OMB for its review and approval under section 3507(d) of the Paperwork
Reduction Act.\54\ Comments are solicited on the Commission's need for
this information, whether the information will have practical utility,
the accuracy of provided burden estimates, ways to enhance the quality,
utility, and clarity of the information to be collected, and any
suggested methods for minimizing the respondent's burden, including the
use of automated information techniques.
    Burden Estimate: The Public Reporting burden for the requirements
contained in the NOPR is as follows:

----------------------------------------------------------------------------------------------------------------
                                                     Number of       Number of       Hours per     Total annual
                 Data collection                    respondents      responses       response          hours
----------------------------------------------------------------------------------------------------------------
 FERC-516
    Transco.....................................              30               1             296           8,880
    Traditional Public Utilities................             200               1             211          42,200
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        Totals..................................             230               1             222          51,080
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    Total Annual Hours for Collection: (Reporting + recordkeeping, (if
appropriate)= 51,080 hours.
    Information Collection Costs: The Commission seeks comments on the
costs to comply with these requirements. It has projected the average
annualized cost to be the total annual hours of 51,080 times $120 =
$6,129,600. (The hourly rate was determined by taking the median annual
salary from Bureau of Labor Statistics, Department of Labor
Occupational Outlook Handbook. The figures reported by BLS are for 2002
and added to them was an inflation factor of 4.73 percent for the
period January 2003 through December 2004.)
    Title: FERC-516 ``Electric Rate Schedule Filings.''
    Action: Proposed Collections.
    OMB Control No: 1902-0096.
    Respondents: Business or other for profit.
    Frequency of Responses: On occasion for applicants and annually for
transmission investment report.
    Necessity of the Information: This proposed rule, if adopted, would
implement the Congressional mandate of the Energy Policy Act of 2005 to
establish incentive-based (including performance-based) rate treatments
for the transmission of electric energy in interstate commerce. This
mandate addresses an identified need to encourage construction of
transmission infrastructure and encourage investment. Sufficient
supplies of energy and a reliable way to transport those supplies are
necessary to assure reliable energy availability and to enable
competitive markets. Without sufficient delivery infrastructure, some
suppliers will not be able to enter the market, customer choices will
be limited, and prices may be needlessly higher or volatile. The
implementation of incentive and performance-based rate treatments
support the Commission's mandate to support investments in transmission
capacity to reduce the cost of delivered power by reducing congestion.
    Internal review: The Commission has reviewed the requirements
pertaining to public utilities and transmission companies and
determined the proposed requirements are necessary to meet the
statutory provisions of the Energy Policy Act of 2005.
    70. These requirements conform to the Commission's plan for
efficient information collection, communication and management within
the energy industry. The Commission has assured itself, by means of
internal review, that there is specific, objective support for the
burden estimates associated with the information requirements.
    71. Interested persons may obtain information on the reporting
requirements by contacting: Federal Energy Regulatory Commission, 888
First Street, NE., Washington, DC 20426 [Attention: Michael Miller,
Office of the Executive Director, Phone:<PHONE_NUMBER>, fax: (202)
273-0873, e-mail<EMAIL_ADDRESS>Comments on the
requirements of the proposed rule may also be sent to the Office of
Information and Regulatory Affairs, Office of Management and Budget,
Washington, DC 20503 [Attention: Desk Officer for the Federal Energy
Regulatory Commission].

V. Environmental Analysis

    72. The Commission is required to prepare an Environmental
Assessment or an Environmental Impact Statement for any action that may
have a significant adverse effect on the human environment.\55\ The
Commission has categorically excluded certain actions from these
requirements as not having a significant effect on the human
environment.\56\ The actions proposed here fall within categorical
exclusions in the Commission's regulations for promulgation of rules
that are clarifying, corrective, or procedural, and for electric rate
filings submitted by public utilities, the establishment of just and
reasonable rates, and confirmation, approval and disapproval of rate
filings submitted by Federal power marketing agencies.\57\ Therefore,
an environmental assessment is unnecessary and has not been prepared
for this NOPR.
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    \54\ 44 U.S.C. 3507(d) (2000).
    \55\ Order No. 486, Regulations Implementing the National
Environmental Policy Act, 52 FR 47897 (Dec. 17, 1987), FERC Stats. &
Regs., Regulations Preamble 1986-1990 ] 30,783 (1987).
    \56\ 18 CFR 380.4 (2005).
    \57\ 18 CFR 380.4(a)(2)(ii) and 380.4(a)(15).

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VI. Regulatory Flexibility Act Certification

    73. The Regulatory Flexibility Act (RFA) \58\ requires that a
rulemaking contain either a description and analysis of the effect that
the proposed rule will have on small entities or a certification that
the rule will not have a significant economic impact on a substantial
number of small entities. However, the RFA does not define
``significant'' or ``substantial'' instead leaving it up to any agency
to determine the impacts of its regulations on small entities. The
proposed regulations would not have a significant adverse impact on a
substantial number of small entities. The proposed rule applies only to
entities that own, control, or operate facilities for transmitting
electric energy in interstate commerce and not to electric utilities
per se. Small entities that believe this proposed rule will have a
significant impact on them may apply to the Commission for waivers.
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    \58\ 5 U.S.C. 601-612 (2000).
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VII. Comment Procedures

    74. The Commission invites interested persons to submit comments on
the matters and issues proposed in this notice to be adopted, including
any related matters or alternative proposals that commenters may wish
to discuss. Comments are due on or before January 11, 2006. Comments
must refer to Docket No. RM06-4-000, and must include the commenter's
name, the organization they represent, if applicable, and their address
in their comments. Comments may be filed either in electronic or paper
format.
    75. Comments may be filed electronically via the eFiling link on
the Commission's Web site at http://www.ferc.gov. The Commission

accepts most standard word processing formats and commenters may attach
additional files with supporting information in certain other file
formats. Commenters filing electronically do not need to make a paper
filing. Commenters that are not able to file comments electronically
must send an original and 14 copies of their comments to: Federal
Energy Regulatory Commission, Office of the Secretary, 888 First Street
NE., Washington, DC 20426.
    76. All comments will be placed in the Commission's public files
and may be viewed, printed, or downloaded remotely as described in the
Document Availability section below. Commenters on this proposal are
not required to serve copies of their comments on other commenters.

VIII. Document Availability

    77. In addition to publishing the full text of this document in the
Federal Register, the Commission provides all interested persons an
opportunity to view and/or print the contents of this document via the
Internet through FERC's Home Page (http://www.ferc.gov) and in FERC's

Public Reference Room during normal business hours (8:30 a.m. to 5 p.m.
Eastern time) at 888 First Street, NE., Room 2A, Washington, DC 20426.
    78. From FERC's Home Page on the Internet, this information is
available in the Commission's document management system, eLibrary. The
full text of this document is available on eLibrary in PDF and
Microsoft Word format for viewing, printing, and/or downloading. To
access this document in eLibrary, type the docket number excluding the
last three digits of this document in the docket number field.
    79. User assistance is available for eLibrary and the FERC's
website during normal business hours. For assistance, please contact
the Commission's Online Support at 1-866-208-3676 (toll free) or TTY
(202) 502-8659, or e-mail at<EMAIL_ADDRESS>You may also
contact the Public Reference Room at<PHONE_NUMBER> or e-mail at
<EMAIL_ADDRESS>

List of Subjects in 18 CFR Part 35

    Electric power rates, Electric utilities, Reporting and
recordkeeping requirements.

    By direction of the Commission.
Magalie R. Salas,
Secretary.
    In consideration of the foregoing, the Commission proposes to amend
part 35 of Chapter I, Title 18, Code of Federal Regulations, as
follows:

PART 35--FILING OF RATE SCHEDULES AND TARIFFS

    1. The authority citation for part 35 continues to read as follows:

    Authority: 16 U.S.C. 791a-825r, 2601-2645; 31 U.S.C. 9701; 42
U.S.C. 7101-7352.

Subpart F--Procedures and Requirements Regarding Regional
Transmission Organizations

Sec.  35.34  [Amended]

    2. In Sec.  35.34, remove and reserve paragraph (e).
    3. A new subpart G is added to read as follows:

Subpart G--Transmission Infrastructure Investment Provisions

Sec.  35.35  Transmission infrastructure investment.

    (a) Purpose. This section establishes rules for incentive-based
(including performance-based) rate treatments for transmission of
electric energy in interstate commerce by public utilities for the
purpose of benefiting consumers by ensuring reliability and reducing
the cost of delivered power by reducing transmission congestion.
    (b) Definitions.
    (1) Transco means a stand-alone transmission company that has been
approved by the Commission and that sells transmission services at
wholesale and/or on an unbundled retail basis, regardless of whether it
is affiliated with another public utility.
    (2) Transmission Organization means a Regional Transmission
Organization, Independent System Operator, independent transmission
provider, or other transmission organization finally approved by the
Commission for the operation of transmission facilities.
    (c) General rule. All rates approved under the rules of this
section, including any revisions to the rules, are subject to the
filing requirements of sections 205 and 206 of the Federal Power Act
and to the substantive requirements of sections 205 and 206 of the
Federal Power Act that all rates, charges, terms and conditions be just
and reasonable and not unduly discriminatory or preferential.
    (d) Incentive-based rate treatments for transmission infrastructure
investment. The Commission will authorize any incentive-based rate
treatment, as discussed in this paragraph (d), for transmission
infrastructure investment, provided that the proposed incentive-based
rate treatment is just and reasonable and not unduly discriminatory or
preferential. An applicant's request, to be made in a filing pursuant
to section 205 of the Federal Power Act, or in a petition for a
declaratory order that precedes a filing pursuant to section 205, must
include a detailed explanation of how the proposed rate treatment
justifies incentive-based (or performance-based) treatment based on the
purposes and requirements of this section. For purposes of this
paragraph (d), incentive-based rate treatment means any of the
following:
    (1) The Commission will authorize the following incentive-based
rate treatments for investment by public utilities, including Transcos,
in new transmission capacity that reduces the cost of delivered power
by reducing

transmission congestion and ensures reliability, as demonstrated in an
application to the Commission:
    (i) A rate of return on equity sufficient to attract new investment
in transmission facilities;
    (ii) 100 percent of prudently incurred Construction Work in
Progress (CWIP) in rate base;
    (iii) Recovery of prudently incurred pre-commercial operations
costs;
    (iv) Hypothetical capital structure;
    (v) Accelerated regulatory book depreciation;
    (vi) Recovery of 100 percent of prudently incurred costs of
transmission facilities that are cancelled or abandoned due to factors
beyond the control of the public utility;
    (vii) Deferred cost recovery; and
    (viii) Any other incentives approved by the Commission, pursuant to
the requirements of this paragraph, that are determined to be just and
reasonable and not unduly discriminatory or preferential.
    (2) In addition to the incentives in paragraph (d)(1) of this
section, the Commission will authorize the following incentive-based
rate treatments for Transcos, provided that the proposed incentive-
based rate treatment is just and reasonable and not unduly
discriminatory or preferential:
    (i) A return on equity that both encourages Transco formation and
is sufficient to attract investment; and
    (ii) An adjustment to 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.
    (e) Incentives for joining a Transmission Organization. The
Commission will authorize an incentive-based rate treatment, as
discussed in this paragraph (e), for public utilities that join a
Transmission Organization, provided that the proposed incentive-based
rate treatment is just and reasonable and not unduly discriminatory or
preferential. Applicants for the incentive-based rate treatment must
make a filing with the Commission under section 205 of the Federal
Power Act. For purposes of this paragraph (e), an incentive-based rate
treatment means a return on equity that is higher than the return on
equity the Commission might otherwise allow if the public utility did
not join a Transmission Organization. The Commission will also permit
public utilities that join a Transmission Organization the ability to
recover prudently incurred costs associated with joining the
Transmission Organization, either through transmission rates charged by
public utilities or through transmission rates charged by the
Transmission Organization that provides services to the public
utilities.
    (f) Approval of prudently-incurred costs. The Commission will
approve recovery of prudently-incurred costs necessary to comply with
the mandatory reliability standards pursuant to section 215 of the
Federal Power Act, provided that the proposed rates are just and
reasonable and not unduly discriminatory or preferential.
    (g) Approval of prudently incurred costs related to transmission
infrastructure development. The Commission will approve recovery of
prudently-incurred costs related to transmission infrastructure
development pursuant to section 216 of the Federal Power Act, provided
that the proposed rates are just and reasonable and not unduly
discriminatory or preferential.
    (h) Reporting transmission investment activity to the Commission.
Jurisdictional public utilities are required to report annually to the
Commission no later than April 18, 2007 and, in succeeding years, on
the date on which Form 1 information is due, the following information
on Form X:
    (i) In dollar terms, actual transmission investment for the most
recent calendar year, and planned investments for the next five years.
    (ii) For all current and planned investments over the next five
years, a project by project listing that specifies for each project the
expected completion date, percentage completion as of the date of
filing, and reasons for delays.

BILLING CODE 6717-01-P

[GRAPHIC] [TIFF OMITTED] TP29NO05.000

[FR Doc. 05-23404 Filed 11-28-05; 8:45 am]

BILLING CODE 6717-01-C


[Federal Register Volume 88, Number 46 (Thursday, March 9, 2023)]
[Notices]
[Page 14615]
[FR Doc No: 2023-04855]

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

[Docket No. ER23-1220-000]

High Point Solar LLC; Supplemental Notice That Initial Market-
Based Rate Filing Includes Request for Blanket Section 204
Authorization

    This is a supplemental notice in the above-referenced proceeding of
High Point Solar LLC's application for market-based rate authority,
with an accompanying rate tariff, noting that such application includes
a request for blanket authorization, under 18 CFR part 34, of future
issuances of securities and assumptions of liability.
    Any person desiring to intervene or to protest should file with the
Federal Energy Regulatory Commission, 888 First Street NE, Washington,
DC 20426, in accordance with Rules 211 and 214 of the Commission's
Rules of Practice and Procedure (18 CFR 385.211 and 385.214). Anyone
filing a motion to intervene or protest must serve a copy of that
document on the Applicant.
    Notice is hereby given that the deadline for filing protests with
regard to the applicant's request for blanket authorization, under 18
CFR part 34, of future issuances of securities and assumptions of
liability, is March 23, 2023.
    The Commission encourages electronic submission of protests and
interventions in lieu of paper, using the FERC Online links at http://www.ferc.gov. To facilitate electronic service, persons with internet
access who will eFile a document and/or be listed as a contact for an
intervenor must create and validate an eRegistration account using the
eRegistration link. Select the eFiling link to log on and submit the
intervention or protests.
    Persons unable to file electronically may mail similar pleadings to
the Federal Energy Regulatory Commission, 888 First Street NE,
Washington, DC 20426. Hand delivered submissions in docketed
proceedings should be delivered to Health and Human Services, 12225
Wilkins Avenue, Rockville, Maryland 20852.
    In addition to publishing the full text of this document in the
Federal Register, the Commission provides all interested persons an
opportunity to view and/or print the contents of this document via the
internet through the Commission's Home Page (http://www.ferc.gov) using
the ``eLibrary'' link. Enter the docket number excluding the last three
digits in the docket number field to access the document. At this time,
the Commission has suspended access to the Commission's Public
Reference Room, due to the proclamation declaring a National Emergency
concerning the Novel Coronavirus Disease (COVID-19), issued by the
President on March 13, 2020. For assistance, contact the Federal Energy
Regulatory Commission at [email protected] or call toll-free,
(886) 208-3676 or TYY,<PHONE_NUMBER>.

    Dated: March 3, 2023.
Debbie-Anne A. Reese,
Deputy Secretary.
[FR Doc. 2023-04855 Filed 3-8-23; 8:45 am]
BILLING CODE 6717-01-P


[Federal Register Volume 77, Number 26 (Wednesday, February 8, 2012)]
[Notices]
[Pages 6556-6557]
[FR Doc No: 2012-2859]

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

Notice of Commission Staff Attendance

    The Federal Energy Regulatory Commission hereby gives notice that
members of the Commission's staff may attend the following meeting
related to the transmission planning activities of the Southwest Power
Pool, Inc. (SPP): Strategic Planning Committee Task Force on Order No.
1000 Meeting, February 10, 2012, 9-3 p.m., Local Time.
    The above-referenced meeting will be held at: AEP Offices, 1201 Elm
Street, Dallas, Texas 72501.
    The above-referenced meeting is open to stakeholders.
    Further information may be found at www.spp.org.
    The discussions at the meetings described above may address matters
at issue in the following proceedings:

Docket No. ER09-35-001, Tallgrass Transmission, LLC
Docket No. ER09-36-001, Prairie Wind Transmission, LLC
Docket No. ER09-36-002, Prairie Wind Transmission, LLC
Docket No. ER09-548-001, ITC Great Plains, LLC
Docket No. ER11-4105-000, Southwest Power Pool, Inc.
Docket No. EL11-34-001, Midwest Independent Transmission System
Operator, Inc.
Docket No. ER11-3967-002, Southwest Power Pool, Inc.
Docket No. ER11-3967-003, Southwest Power Pool, Inc.

    For more information, contact Luciano Lima, Office of Energy Market
Regulation, Federal Energy Regulatory

Commission at<PHONE_NUMBER> or<EMAIL_ADDRESS>
    Dated: February 2, 2012.
Kimberly D. Bose,
Secretary.
[FR Doc. 2012-2859 Filed 2-7-12; 8:45 am]
BILLING CODE 6717-01-P