FERC Moves to Modernize Transmission Incentives, Enhance Grid Resilience

By Jim Cunningham, executive director, Protect Our Power, and Suedeen G. Kelly, former Commissioner, Federal Energy Regulatory Commission

The Federal Energy Regulatory Commission (FERC) has launched an important initiative with the potential to significantly upgrade both the reliability and resilience of the nation’s electric grid.

In March, FERC issued a Notice of Proposed Rulemaking (NOPR) to revise existing transmission line incentives with an eye toward promoting expansion of the nation’s electric transmission grid, the system of large-capacity power lines that move bulk power from where it is produced to where it is needed.

As noted in our formal comments filed in support of the NOPR, Protect Our Power agrees with FERC that the landscape for planning, developing, operating, and maintaining transmission infrastructure has changed considerably in recent years and “the types of transmission projects that are needed, and the use of rate treatments to incent them, must evolve to reflect the changes in market fundamentals.” This is particularly true with respect to projects that advance the physical and cyber defense of the nation’s grid.

Under current regulations, utilities proposing to build a new transmission line must undergo a “risks and challenges” test to demonstrate to FERC that the new line will improve overall grid reliability. FERC is now proposing that a broader range of factors be considered for “return on equity” incentives for utilities, which could spur needed transmission line construction and help clear up some existing confusion about FERC’s current method of establishing returns on equity for such lines.

Under the proposed changes,  the existing “risks and challenges” test would be replaced by an approach that evaluates utility incentive requests based on expected benefits to consumers, and allows a new range of incentives based on demonstrable economic and reliability benefits, as well as the use of advanced transmission technologies. The proposal would also increase an existing benefit to utilities whose new transmission line is part of Independent System Operator (ISO) or Regional Transmission Organization (RTO).

Perhaps most importantly, the NOPR also proposes to allow incentives for transmission projects that provide resilience benefits, which “could include the hardening of transmission assets against adverse weather events, fires, and geomagnetic disturbances,” as well as investments such as spare equipment that increase the ability of the grid to recover more quickly from a major disruption.

Protect Our Power believes that in today’s world of sophisticated, ever-evolving threats to the grid, the existing standard of being “reliable” is no longer sufficient. Today’s grid must also be resilient – harder to hack into, more difficult to disable or dismantle, and quicker to repair or restore power.

If we want a grid with “the ability to withstand and reduce the magnitude and/or duration of disruptive events,” as the FERC NOPR suggests, enhancing resiliency, as well as reliability, is essential. Making resilience investments eligible for returns on equity is an important first step in redefining key grid characteristics, and a smart recognition by FERC that a resilient grid is more than just reliable.

While the overall transmission system is somewhat arcane to the average consumer, these electric system modernizations are overdue and reflect a laudable evolution in FERC’s thinking about transmission line development, planning and security, especially as cyber threats to the grid increase and more diverse sources of electric generation come on line.  It is also important that benefits to consumers are now part of the equation since, at the end of the day, consumers foot a substantial part of such investments through their electric rates.

Jim Cunningham

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Suedeen Kelly

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