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March 5th, 2012

Broad Coalition Seeks Changes in Federal Incentives For Utility Transmission Construction

HARTFORD – A broad coalition of attorneys general, state regulators, consumer advocates, consumer-owned utilities and major national and regional environmental groups has joined Attorney General George Jepsen and Kevin DelGobbo, chairman of the Connecticut Public Utilities Regulatory Authority, in urging federal regulators to stop providing expensive and unnecessary “incentives” to encourage construction of new, high-voltage transmission facilities.

In a letter filed Monday with the Federal Energy Regulatory Commission in Washington, the 35 signatory organizations presented common concerns with FERC’s policy on transmission incentives. The letter highlights points of agreement among the organizations, most of which have previously told FERC that its incentive policies have become overly generous to transmission companies at the expense of ratepayers.

The coalition urged federal regulators to reconsider their policy of awarding incentives for the construction of new electric transmission lines that utilities already are obligated to build and to resist providing bonus rate incentives for costly transmission facilities when less expensive, non-transmission solutions are available to satisfy reliability needs. The coalition also urged FERC to award less-expensive incentives first and to reserve more costly ones for the few cases in which they are truly needed.

“The current incentive structure places unwarranted burdens on consumers, and diverts ratepayer capital away from other important electric infrastructure investments. We encourage the Commission to modify its policies so as to better protect consumers and advance policy goals,” they wrote.

FERC has asked for public comment about whether its policy of granting incentives for transmission facility construction was appropriate considering the changes in the electric power industry.

The March 5 letter reflects broad support for changes to FERC’s policy and underscores areas of agreement with comments that Connecticut first filed with FERC in September. At that time, Attorneys General and/or utility regulators in eight states endorsed the comments. FERC has not set a date for a decision on the issue.

“The diversity of our perspectives notwithstanding, we have reached similar conclusions regarding many of the significant issues raised in [FERC’s] Notice of Inquiry. We write now to highlight broad areas of agreement among our organizations, and to urge the Commission to consider this broad agreement in assessing current transmission incentive policies,” the signers wrote.

Among the points of agreement:

The Commission: should first consider incentives that directly address or reduce high levels of risk; should not provide incentives to projects that transmission owners are already obligated to build; should not charge utility customers for expensive transmission solutions when lower-cost alternatives are available; should not make unusually large transmission projects preferentially eligible for incentives over incremental system upgrades.

Also, the Commission: should apply incentives to budgeted rather than actual amounts to avoid rewarding cost overruns; should provide incentives to encourage completion of projects; should identify the types of baseline or low-risk projects that are ineligible for incentives; should keep the components of the rate of return separate on projects that receive incentives so that the public can distinguish costs from rewards.

Transmission owners, including Connecticut Light & Power Co. and United Illuminating Co. in Connecticut, recover their cost plus a return on their investment through regulated rates. In New England, transmission owners currently receive an almost 12 percent return on their investments. One of the more costly and controversial incentives provided under FERC’s program are “adders” that can boost investment returns by another one or two percent. Transmission projects necessary to upgrade the reliability of the electric grid in New England are determined by ISO-New England, the regional grid operator.

The organizations joining with Attorney General Jepsen and Chairman DelGobbo include the National Resources Defense Council, Sierra Club, Environmental Defense Fund, National Audubon Society and Environment Northeast, the New England Conference of Public Utility Commissioners, the Colorado Public Utilities Commission, National Association of State Utility Consumer Advocates and consumer advocates in Delaware, Kansas, Indiana, Maryland, Washington, D.C. , as well as several consumer-owned utilities and trade associations representing them.

Assistant Attorneys General John Wright and Michael Wertheimer are handling this matter for Jepsen with Associate Attorney General Joseph Rubin. Assistant Attorney General Clare Kindall, Energy department head, is representing PURA.

For a full list of supporters, see FERC letter.


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