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Exposing Myths on what the FERC Really Wants

Fortnightly Magazine - March 1 2000

precedent, the 1988 Minnesota Power & Light Co. case, permits the adjustment on a showing of measurable benefit. (See 43 FERC ¶61,104.)

We regard the required showing as something a transco easily should achieve.

Myth No. 9: It Will Approve Only Two Types

Reality: Expect To See More

We have heard claims that Order 2000 rejected incentives in the "signing bonus" category: namely, accelerated depreciation, changes in computation to flat-rate depreciation and incremental pricing. According to that argument, only two types of incentives would remain: (1) performance-based rates, and (2) higher rates of return to reflect risk. They fall under the class of "forward looking" incentives that do not cost consumers any money.

This analysis bears rethinking. In the regulatory text, Section 35.34(e)(2) lists accelerated depreciation, changes to levelized (flat rate) depreciation and incremental prices for new construction. The latter comes under the rubric of a combination of average rate access fee for existing facilities and incremental pricing for new ones.

Myth No. 10: Everyone Can Get

Incentives

Reality: Only the RTO, Not the Utilities

On the other side of the fence, integrated utilities want incentives for themselves, rather than for the RTO. That's true especially for an ISO/RTO.

Yet in Section 35.34(k)(5), Order 2000 provides that the RTO will decide the rate structure. The owners at most can state only a revenue requirement, subject to negotiation within the RTO. That means the owners set the costs to be recovered. Whether to ask for incentives is a choice that belongs to the RTO, as the regional grid manager. Otherwise, customers will fall into paying multiple, pancaked rates, within a region, as some owners have incentive rates and others do not.

In sum, if you want incentives for yourself, become a transco, qualify as an RTO and make the demonstration that the FERC requires. Prove a need to induce efficiency into the transmission business.

Curt L. Hébert Jr. sits as a commissioner at the Federal Energy Regulatory Commission. First appointed in 1997, his second term expires in June 2004. Joshua Z. Rokach advises the commissioner on electric issues. This article reflects the opinions of the authors only.

Is There a Mandate?

We now lay that issue to rest.

The "free market" crowd and the "regulator faction" disagree on whether Order 2000 forces utilities to join RTOs. If you pay careful attention, you will hear the regulator faction speaking of what the FERC supposedly "could" do, if some utilities eventually choose not to join an RTO.

We acknowledge that Order 2000 does allow the FERC to act in specific cases (in a merger case, for instance), but only if necessary to uphold the Federal Power Act and supported by the record. (Order 2000, p. 142.) But first, we ask that they continue reading. Elsewhere in Order 2000, the FERC states categorically that it will not mandate RTO participation:

We are not adopting as a generic policy in this Final Rule either that RTO participation is required in order to retain or obtain market-based rate authorization for wholesale power sales, or that RTO participation is