From the Fukushima disaster and its repercussions, to the raging battle over new EPA regulations, 2011 was one of the most volatile years on record for the electric power business. Will 2012 be...
Killing the Goose
Second thoughts on transmission’s golden egg.
With its Order No. 679, issued in 2006 at the urging of Congress to help expand the nation’s electric grid, the Federal Energy Regulatory Commission has granted billions in financial incentives and fostered a boom in transmission line construction that continues today.
So why should FERC now want to tighten the purse strings and risk a key policy success?
The numbers, at least, offer strong evidence that FERC has achieved what it set out to do. According to the Edison Electric Institute, Order 679 helped boost annual transmission line spending from $6.5 billion in 2005 (inflation-adjusted, 2010 dollars), to $9.3 billion per year in the four years since 2006—a 42 percent increase (see Figure 1) . Program incentives expanded so fast, in fact, that by June 2009 FERC Chairman Jon Welllinghoff found himself answering a formal inquiry from Congressman Ed Markey, then the chairman of the House Subcommittee on Energy and Environment, hinting that awards had become too generous. Markey wanted precise data on what rewards FERC had then granted to date. By that time, 58 projects had won incentives, Wellinghoff said, representing 10,700 in line-miles and $40.7 billion in total costs.
Rewards had only grown further by May of last year, when the commission issued a “notice of inquiry” asking how it might reform the program. In a span of roughly five years, the commission had received over 75 applications under Order 679, seeking incentives for grid expansion worth over $50 billion. (Notice of Inquiry, Dkt. RM11-26, 135 FERC ¶61,146, issued May 19, 2011.)
Nevertheless, signals now suggest FERC wants to tighten the spigot. In short, the policy seems slapdash and somewhat ungrounded.
As NextEra senior attorney Gunnar Birgisson has noted, in commenting on FERC’s inquiry, the cases reveal a certain “degree of unpredictability” in how the commission has chosen to award incentives.
“It can be challenging,” he adds, “to find consistency in the rationale.” (Comments of NextEra Energy, p. 3, Dkt. RM11-26, filed, Sept. 9, 2011.)
Wellinghoff said as much as far back as November 2008, when he first dissented on certain incentive awards for the $2.1 billion NEEWS project (New England East-West Solution), and then again last summer on rehearing, when he described the majority’s analysis of the so-called “nexus test” as “insufficiently rigorous.” (NE Utils., Dkt. ER08-1548, rehearing denied, June 28, 2011, 135 FERC ¶270.)
Former Commissioner Suedeen Kelly was of similar mind: “granting incentives requests for routine projects … solidifies incentive rate making as the new normal.” (PEPCO Holdings, Dkt. ER08-686, Aug. 22, 2008, dissenting opinion, 124 FERC ¶61,176.)
Later, in 2010, when dissenting on certain incentives for the ill-fated PATH line, Commissioner John Norris complained that FERC lacked a “clear framework” and did “not appropriately balance” upside revenue awards with other incentives designed to minimize downside risk. (Potomac-Appalachian Trans. Highline, Dkt. ER08-386, rehear. order Nov. 19, 2010, 133 FERC ¶61,152.)
Given these sentiments, FERC’s inquiry should scarcely have raised eyebrows. Yet if any developers expected the storm to soon