The Working group for Investment in Reliable and Economic electric Systems (WIRES) petitioned the Federal Energy Regulatory Commission (FERC) to re-examine and clarify its use of the prevailing discounted cash flow methodology (DCF) and to take account of transmission’s benefits when setting rates of return on new and existing projects.
The petition for statement of policy asks FERC to establish an expedited proceeding to consider how to minimize the subjectivity and variability in DCF outcomes so as to ensure that pending litigation, federal monetary policy and a failure to take proper account of transmission benefits do not discourage investment in the power grid.
WIRES specifically called for a new policy that (1) standardizes selection of proxy groups; (2) denies complainants a hearing on rates of return for existing facilities unless it is shown that existing returns are at the extremes of the zone of reasonableness; (3) allows consideration of competing infrastructure investments of other industries; (4) permits use of rate of return methodologies other than DCF; and (5) supports use of more forward-looking data and modeling.
Noting the dramatic swings in transmission investment in past decades and the well-known obstacles to timely transmission development, WIRES’ petition urges FERC to avoid creating yet another barrier to these long-lived, intergenerational investments by allowing a perception of risk to persist due to potentially abrupt changes in allowed returns.
According to the petition, “It is time to move past ‘zero-sum’ transmission ratemaking disputes to more stable rates of return on equity and a more stable pattern of infrastructure investment that will sustain transmission’s diverse benefits as well as the Commission’s initiatives.”
WIRES’ petition argues that, “Open access and comparability requirements, regional wholesale power markets, accelerating network integration, the arrival of non-utility transmission investors as well as utility diversification into commercial transmission, deployment of digital monitoring and control technologies, and new forms of renewable energy,” make for a “new normal.”
These changes present FERC with an opportunity to seek ways to ensure “consistent and well-planned transmission investment year-in and year-out,” consistent with the FERC’s duty to protect customers and create positive incentives for transmission investment.
The petition recommends that the FERC open a 30-day comment period on these and/or other policy proposals, after which it would issue a statement of policy on how it will administer rate of return proceedings for electric transmission.